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Crafting & Executing Strategy: The Quest for Competitive Advantage: Concepts & Cases 23e has a long-standing reputation of being the most teachable text. It is regarded as the benchmark by which all others are measured. It is engaging, clearly articulated and conceptually balanced mainstream treatment of the latest developments in theory and practice include the clearest presentation of the value-price-cost framework. Our co-author, Margaret Peteraf, a highly regarded researcher, helped integrate both the resource-based view of the firm from the perspective of both single-business and multi-business strategies. Chapter content is tightly linked to the 27 high-interest cases, most of which are written by the text authors, and receive high acclaim for student appeal, teach ability and suitability.
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This international version is the same as the regular version. The cases are different from the previous (22nd) edition.
12 December 2021 (08:54) 

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CRAFTING AND
EXECUTING STRATEGY
The Quest for Competitive Advantage
Concepts and Cases

CRAFTING AND
EXECUTING STRATEGY
The Quest for Competitive Advantage
Concepts and Cases

|

23RD EDITION

Arthur A. Thompson

Margaret A. Peteraf

John E. Gamble

A.J. Strickland III

The University of Alabama

Texas A&M University–Corpus Christi

Dartmouth College

The University of Alabama

Final PDF to printer

CRAFTING & EXECUTING STRATEGY: CONCEPTS AND CASES
Published by McGraw Hill LLC, 1325 Avenue of the Americas, New York, NY 10121. Copyright ©2022
by McGraw Hill LLC. All rights reserved. Printed in the United States of America. No part of this
publication may be reproduced or distributed in any form or by any means, or stored in a database or
retrieval system, without the prior written consent of McGraw Hill LLC, including, but not limited to, in
any network or other electronic storage or transmission, or broadcast for distance learning.
Some ancillaries, including electronic and print components, may not be available to customers outside
the United States.
This book is printed on acid-free paper.
1 2 3 4 5 6 7 8 9 LWI 24 23 22 21
ISBN 978-1-265-02824-4
MHID 1-265-02824-9
Cover Image: Image Source/Getty Images
All credits appearing on page or at the end of the book are considered to be an extension of the copyright
page.

The Internet addresses listed in the text were accurate at the time of publication. The inclusion of a website
does not indicate an endorsement by the authors or McGraw Hill LLC, and McGraw Hill LLC does not
guarantee the accuracy of the information presented at these sites.

mheducation.com/highered

tho28249_fm_ise.indd

iv

10/08/20 08:00 AM

To our families and especially our spouses:
Hasseline, Paul, Heather, and Kitty.

About the Authors

Courtesy of Arthur A.
Thompson, Jr.

Courtesy of Margaret A.
Peteraf

vi

Arthur A. Thompson, Jr., earned his BS and PhD degrees in economics from The
University of Tennessee, spent three years on the economics faculty at Virginia Tech, and; 
served on the faculty of The University of Alabama’s College of Commerce and Business
Administration for 24 years. In 1974 and again in 1982, Dr. Thompson spent semester-long
sabbaticals as a visiting scholar at the Harvard Business School.
His areas of specialization are business strategy, competition and market analysis, and
the economics of business enterprises. In addition to publishing over 30 articles in some
25 ­different professional and trade publications, he has authored or co-authored five ­textbooks
and six computer-based simulation exercises. His textbooks and strategy simulations have
been used at well over 1,000 college and university campuses worldwide.
Dr. Thompson and his wife of 58 years have two daughters, two grandchildren, and a
Yorkshire Terrier.
Margaret A. Peteraf is the Leon E. Williams Professor of Management Emerita at the
Tuck School of Business at Dartmouth College. She is an internationally recognized scholar
of strategic management, with a long list of publications in top management journals. She
has earned myriad honors and prizes for her contributions, including the 1999 Strategic
Management Society Best Paper Award recognizing the deep influence of her work on the
field of Strategic Management. Professor Peteraf is a fellow of the Strategic Management
Society and the Academy of Management. She served previously as a member of the Board
of Governors of both the Society and the Academy of Management and as Chair of the
Business Policy and Strategy Division of the Academy. She has also served in various editorial roles and on numerous editorial boards, including the Strategic Management Journal,
the Academy of Management Review, and Organization Science. She has taught in Executive
Education programs in various programs around the world and has won teaching awards at
the MBA and Executive level.
Professor Peteraf earned her PhD, MA, and MPhil at Yale University and held previous
faculty appointments at Northwestern University’s Kellogg Graduate School of Management and at the University of Minnesota’s Carlson School of Management.

John E. Gamble is a Professor of Management and Dean of the College of Business at
Texas A&M University–Corpus Christi. His teaching and research for 25 years has focused
on strategic management at the undergraduate and graduate levels. He has conducted
courses in strategic management in Germany since 2001, which have been sponsored by the
University of Applied Sciences in Worms.
Dr. Gamble’s research has been published in various scholarly journals and he is the
author or co-author of more than 75 case studies published in an assortment of strategic
management and strategic marketing texts. He has done consulting on industry and market
analysis for clients in a diverse mix of industries.
Professor Gamble received his PhD, MA, and BS degrees from The University of Alabama
and was a faculty member in the Mitchell College of Business at the University of South
Alabama before his appointment to the faculty at Texas A&M University–Corpus Christi.
Dr. A. J. (Lonnie) Strickland is the Thomas R. Miller Professor of Strategic Management at the Culverhouse School of Business at The University of Alabama. He is a native
of north Georgia, and attended the University of Georgia, where he received a BS degree
in math and physics; Georgia Institute of Technology, where he received an MS in industrial management; and Georgia State University, where he received his PhD in business
administration.
Lonnie’s experience in consulting and executive development is in the strategic management arena, with a concentration in industry and competitive analysis. He has developed
strategic planning systems for numerous firms all over the world. He served as Director
of Marketing and Strategy at BellSouth, has taken two companies to the New York Stock
Exchange, is one of the founders and directors of American Equity Investment Life Holding
(AEL), and serves on numerous boards of directors. He is a very popular speaker in the area
of strategic management.
Lonnie and his wife, Kitty, have been married for over 49 years. They have two children
and two grandchildren. Each summer, Lonnie and his wife live on their private game reserve
in South Africa where they enjoy taking their friends on safaris.

Courtesy of Richard’s
Photography, LLC.

Courtesy of Dr. A. J. (Lonnie)
Strickland

vii

Preface

B

y offering the most engaging, clearly articulated, and conceptually sound text on
strategic management, Crafting and Executing Strategy has been able to maintain
its position as the leading textbook in strategic management for over 35 years.
With this latest edition, we build on this strong foundation, maintaining the attributes
of the book that have long made it the most teachable text on the market, while updating the content, sharpening its presentation, and providing enlightening new illustrations and examples.
The distinguishing mark of the 23rd edition is its enriched and enlivened presentation of the material in each of the 12 chapters, providing an as up-to-date and ­engrossing
discussion of the core concepts and analytical tools as you will find anywhere. As with
each of our new editions, there is an accompanying lineup of exciting new cases that
bring the content to life and are sure to provoke interesting classroom discussions,
deepening students’ understanding of the material in the process.
While this 23rd edition retains the 12-chapter structure of the prior edition, every
chapter—indeed every paragraph and every line—has been reexamined, refined, and
refreshed. New content has been added to keep the material in line with the latest developments in the theory and practice of strategic management. In other areas, coverage
has been trimmed to keep the book at a more manageable size. Scores of new examples
have been added, along with many new Illustration Capsules, to enrich understanding
of the content and to provide students with a ringside view of strategy in action. The
result is a text that cuts straight to the chase in terms of what students really need to
know and gives instructors a leg up on teaching that material effectively. It remains, as
always, solidly mainstream and balanced, mirroring both the penetrating insight of academic thought and the pragmatism of real-world strategic management.
A standout feature of this text has always been the tight linkage between the content
of the chapters and the cases. The lineup of cases that accompany the 23rd edition is
outstanding in this respect—a truly appealing mix of strategically relevant and thoughtfully crafted cases, certain to engage students and sharpen their skills in applying the
concepts and tools of strategic analysis. Many involve high-profile companies that
the students will immediately recognize and relate to; all are framed around key strategic issues and serve to add depth and context to the topical content of the chapters. We
are confident you will be impressed with how well these cases work in the classroom
and the amount of student interest they will spark.
For some years now, growing numbers of strategy instructors at business schools
worldwide have been transitioning from a purely text-case course structure to a
more robust and energizing text-case-simulation course structure. Incorporating a
competition-based strategy simulation has the strong appeal of providing class members with an immediate and engaging opportunity to apply the concepts and ­analytical
tools covered in the chapters and to become personally involved in crafting and executing a strategy for a virtual company that they have been assigned to manage and that

viii

competes head-to-head with companies run by other class members. Two widely used
and pedagogically effective online strategy simulations, The Business Strategy Game
and GLO-BUS, are optional companions for this text. Both ­simulations were created by Arthur Thompson, one of the text authors, and, like the cases, are closely
linked to the content of each chapter in the text. The Exercises for Simulation
­Participants, found at the end of each chapter and integrated into the Connect
package for the text, provide clear guidance to class members in applying the concepts and analytical tools covered in the chapters to the issues and decisions that
they have to wrestle with in managing their simulation company.
To assist instructors in assessing student achievement of program learning objectives, in line with AACSB requirements, the 23rd edition includes a set of Assurance of
Learning Exercises at the end of each chapter that link to the specific learning objectives appearing at the beginning of each chapter and highlighted throughout the text.
An important instructional feature of the 23rd edition is its more closely integrated linkage of selected chapter-end Assurance of Learning Exercises and cases to Connect™.
Your students will be able to use Connect™ to (1) complete chapter-specific activities,
including selected Assurance of Learning Exercises appearing at the end of each of
the 12 ­chapters as well as video and comprehension cases, (2) complete chapter-end
quizzes, (3) complete suggested assignment questions for 14 of the 27 cases in this
edition and (4) complete assignment questions for simulation users. All Connect exercises are ­automatically graded (with the exception of select Exercises for Simulation
­Participants), thereby enabling you to easily assess the learning that has occurred.
In addition, both of the companion strategy simulations have a built-in Learning
Assurance Report that quantifies how well each member of your class performed on
nine skills/learning measures versus tens of thousands of other students worldwide who
completed the simulation in the past 12 months. We believe the chapter-end Assurance of Learning Exercises, the all-new online and automatically graded Connect™
exercises, and the Learning Assurance Report generated at the conclusion of The Business Strategy Game and GLO-BUS simulations provide you with easy-to-use, empirical
measures of student learning in your course. All can be used in conjunction with other
instructor-developed or school-developed scoring rubrics and assessment tools to comprehensively evaluate course or program learning outcomes and measure compliance
with AACSB accreditation standards.
Taken together, the various components of the 23rd edition package and the supporting set of instructor resources provide you with enormous course design flexibility
and a powerful kit of teaching/learning tools. We’ve done our very best to ensure that
the elements constituting the 23rd edition will work well for you in the classroom, help
you economize on the time needed to be well prepared for each class, and cause students to conclude that your course is one of the very best they have ever taken—from the
standpoint of both enjoyment and learning.

ix

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PREFACE

DIFFERENTIATING FEATURES OF THE 23RD EDITION
Nine standout features strongly differentiate this text and the accompanying instructional package from others in the field:
1. We provide the clearest discussion of business models to be found anywhere. By introducing this often-misunderstood concept right in the first chapter and defining it
precisely, we give students a leg up on grasping this important concept. Follow-on
discussions in the next eight chapters drive the concept home. Illustration capsules
and cases show how a new business model can enable a company to compete successfully even against well-established rivals. In some cases, a new business model
can even be the agent for disrupting an existing industry.
2. Our integrated coverage of the two most popular perspectives on strategic ­management—
positioning theory and resource-based theory—is unsurpassed by any other leading
strategy text. Principles and concepts from both the positioning perspective and the
resource-based perspective are prominently and comprehensively integrated into
our coverage of crafting both single-business and multibusiness strategies. By highlighting the relationship between a firm’s resources and capabilities to the activities
it conducts along its value chain, we show explicitly how these two perspectives
relate to one another. Moreover, in Chapters 3 through 8 it is emphasized repeatedly that a company’s strategy must be matched not only to its external market
circumstances but also to its internal resources and competitive capabilities.
3. With this new edition, we provide the clearest, easiest to understand presentation of the
value-price-cost framework. In recent years, this framework has become an essential
aid to teaching students how companies create economic value in the course of
conducting business. We show how this simple framework informs the concept
of the business model as well as the all-important concept of competitive advantage. In Chapter 5, we add further clarity by showing in pictorial fashion how the
value-price-cost framework relates to the different sources of competitive advantage
that underlie the five generic strategies.
4. Our coverage of cooperative strategies and the role that interorganizational activity
can play in the pursuit of competitive advantage is similarly distinguished. The topics of the value net, ecosystems, strategic alliances, licensing, joint ventures, and
other types of collaborative relationships are featured prominently in a number of
chapters and are integrated into other material throughout the text. We show how
strategies of this nature can contribute to the success of single-business companies
as well as multibusiness enterprises, whether with respect to firms operating in
domestic markets or those operating in the international realm.
5. The attention we give to international strategies, in all their dimensions, make this textbook an indispensable aid to understanding strategy formulation and execution in an
increasingly connected, global world. Our treatment of this topic as one of the most
critical elements of the scope of a company’s activities brings home to students the
connection between the topic of international strategy with other topics concerning firm scope, such as multibusiness (or corporate) strategy, outsourcing, insourcing, and vertical integration.
6. With a standalone chapter devoted to these topics, our coverage of business ethics,
­corporate social responsibility, and environmental sustainability goes well beyond that
offered by any other leading strategy text. Chapter 9, “Ethics, Corporate Social
Responsibility, Environmental Sustainability, and Strategy,” fulfills the important
functions of (1) alerting students to the role and importance of ethical and socially

PREFACE

responsible decision making and (2) addressing the accreditation requirement of
the AACSB International that business ethics be visibly and thoroughly embedded
in the core curriculum. Moreover, discussions of the roles of values and ethics are
integrated into portions of other chapters, beginning with the first chapter, to further reinforce why and how considerations relating to ethics, values, social responsibility, and sustainability should figure prominently into the managerial task of
crafting and executing company strategies.
7. Long known as an important differentiator of this text, the case collection in the
23rd edition is truly unrivaled from the standpoints of student appeal, teachability,
and suitability for drilling students in the use of the concepts and analytical treatments in Chapters 1 through 12. The 27 cases included in this edition are the very
latest, the best, and the most on target that we could find. The ample information
about the cases in the Instructor’s Manual makes it effortless to select a set of cases
each term that will capture the interest of students from start to finish.
8. The text is now optimized for hybrid and online delivery through robust assignment
and assessment content integrated into Connect™. This will enable professors to
gauge class members’ prowess in accurately completing (a) additional exercises and
selected chapter-end exercises, (b) chapter-end quizzes, (c) exercises for simulation
participants, and (d) exercises for 14 of the cases in this edition.
9. Two cutting-edge and widely used strategy simulations—The Business Strategy Game and
GLO-BUS—are optional companions to the 23rd edition. These give you an unmatched
capability to employ a text-case-simulation model of course delivery.

ORGANIZATION, CONTENT, AND FEATURES OF THE
23RD-EDITION TEXT CHAPTERS
• Chapter 1 serves as a brief, general introduction to the topic of strategy, focusing

on the central questions of “What is strategy?” and “Why is it important?” As such,
it serves as the perfect accompaniment for your opening-day lecture on what the
course is all about and why it matters. Using the example of Apple, Inc., to drive
home the concepts in this chapter, we introduce students to what we mean by “competitive advantage” and the key features of business-level strategy. Describing strategy making as a process, we explain why a company’s strategy is partly planned
and partly reactive and why a strategy tends to co-evolve with its environment over
time. As part of this strategy making process, we discuss the importance of ethics
in choosing among strategic alternatives. We introduce the concept of a business
model and offer a clear definition along with an illustration capsule that provides
examples from the real world of business. We explain why a viable business model
must provide both an attractive value proposition for the company’s customers and a
formula for making profits for the company. A key feature of this chapter is a depiction of how the value-price-cost framework can be used to frame this discussion.
We show how the mark of a winning strategy is its ability to pass three tests: (1) the
fit test (for internal and external fit), (2) the competitive advantage test, and (3) the
performance test. And we explain why good company performance depends not only
upon a sound strategy but upon solid strategy execution as well.
• Chapter 2 presents a more complete overview of the strategic management process, covering topics ranging from the role of vision, mission, and values to what
constitutes good corporate governance. It makes a great assignment for the second day of class and provides a smooth transition into the heart of the course.

xi

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PREFACE

•

•

•

•

It introduces students to such core concepts as strategic versus financial objectives,
the balanced scorecard, strategic intent, and business-level versus corporate-level
strategies. It explains why all managers are on a company’s strategy-making, strategy-­
executing team and why a company’s strategic plan is a collection of strategies
devised by different managers at different levels in the organizational hierarchy.
The chapter concludes with a section on the role of the board of directors in the
strategy-making, strategy-executing process and examines the conditions that have
led to recent high-profile corporate governance failures. The illustration capsule on
Volkswagen’s emissions scandal brings this section to life.
The next two chapters introduce students to the two most fundamental perspectives
on strategy making: the positioning view, exemplified by Michael Porter’s classic “five
forces model of competition,” and the resource-based view. Chapter 3 provides what
has long been the clearest, most straightforward discussion of the five forces framework
to be found in any text on strategic management. It also offers a set of complementary
analytical tools for conducting competitor analysis, identifying strategic groups along
with the mobility barriers that limit movement among them, and demonstrates the
importance of tailoring strategy to fit the circumstances of a company’s industry and
competitive environment. The chapter includes a discussion of the value net framework, which is useful for conducting analysis of how cooperative as well as competitive
moves by various parties contribute to the creation and capture of value in an industry.
Chapter 4 presents the resource-based view of the firm, showing why resource and
capability analysis is such a powerful tool for sizing up a company’s competitive
assets. It offers a simple framework for identifying a company’s resources and capabilities and explains how the VRIN framework can be used to determine whether
they can provide the company with a sustainable competitive advantage over its competitors. Other topics covered in this chapter include dynamic capabilities, SWOT
analysis, value chain analysis, benchmarking, and competitive strength assessments,
thus enabling a solid appraisal of a company’s cost position and customer value proposition vis-á-vis its rivals. An important feature of this chapter is a table showing how key
financial and operating ratios are calculated and how to interpret them. Students will
find this table handy in doing the number crunching needed to evaluate whether a
company’s strategy is delivering good financial performance.
Chapter 5 sets forth the basic approaches available for competing and winning in
the marketplace in terms of the five generic competitive strategies— broad low-cost,
broad differentiation, best-cost, focused differentiation, and focused low cost. It
demonstrates pictorially the link between generic strategies, the value-price-cost
framework, and competitive advantage. The chapter also describes when each of
the five approaches works best and what pitfalls to avoid. Additionally, it explains
the role of cost drivers and uniqueness drivers in reducing a company’s costs and
enhancing its differentiation, respectively.
Chapter 6 focuses on other strategic actions a company can take to complement its
competitive approach and maximize the power of its overall strategy. These include
a variety of offensive or defensive competitive moves, and their timing, such as blueocean strategies and first-mover advantages and disadvantages. It also includes choices
concerning the breadth of a company’s activities (or its scope of operations along an
industry’s entire value chain), ranging from horizontal mergers and acquisitions, to
vertical integration, outsourcing, and strategic alliances. This material serves to segue
into the scope issues covered in the next two chapters on international and diversification strategies.

PREFACE

• Chapter 7 takes up the topic of how to compete in international markets. It begins

•

•

•

•

with a discussion of why differing market conditions across countries must necessarily influence a company’s strategic choices about how to enter and compete in
foreign markets. It presents five major strategic options for expanding a company’s
geographic scope and competing in foreign markets: export strategies, licensing,
franchising, establishing a wholly owned subsidiary via acquisition or “greenfield”
venture, and alliance strategies. It includes coverage of topics such as Porter’s
Diamond of National Competitive Advantage, multi-market competition, and the
choice between multidomestic, global, and transnational strategies. This chapter
explains the impetus for sharing, transferring, or accessing valuable resources
and capabilities across national borders in the quest for competitive advantage,
connecting the material to that on the resource-based view from Chapter 4. The
chapter concludes with a discussion of the unique characteristics of competing in
developing-country markets.
Chapter 8 concerns strategy making in the multibusiness company, introducing the topic of corporate-level strategy with its special focus on diversification.
The first portion of this chapter describes when and why diversification makes
good strategic sense, the different means of diversifying a company’s business
lineup, and the pros and cons of related versus unrelated diversification strategies. The second part of the chapter looks at how to evaluate the attractiveness
of a ­diversified company’s business lineup, how to decide whether it has a good
diversification strategy, and what strategic options are available for improving
a diversified company’s future performance. The evaluative technique integrates
material concerning both industry analysis and the resource-based view, in that
it considers the relative attractiveness of the various industries the company has
diversified into, the company’s competitive strength in each of its lines of business, and the extent to which its different businesses exhibit both strategic fit and
resource fit.
Although the topic of ethics and values comes up at various points in this textbook,
Chapter 9 brings more direct attention to such issues and may be used as a standalone assignment in either the early, middle, or late part of a course. It concerns
the themes of ethical standards in business, approaches to ensuring consistent ethical standards for companies with international operations, corporate social responsibility, and environmental sustainability. The contents of this chapter are sure to
give students some things to ponder, rouse lively discussion, and help to make students more ethically aware and conscious of why all companies should conduct their
business in a socially responsible and sustainable manner.
The next three chapters (Chapters 10, 11, and 12) comprise a module on strategy execution that is presented in terms of a 10-step action framework. Chapter 10 provides an
overview of this framework and then explores the first three of these tasks: (1) ­staffing
the organization with people capable of executing the ­strategy well, (2) building the
organizational capabilities needed for successful strategy execution, and (3) creating
an organizational structure supportive of the strategy execution process.
Chapter 11 discusses five additional managerial actions that advance the cause
of good strategy execution: (1) allocating resources to enable the strategy execution process, (2) ensuring that policies and procedures facilitate rather than impede
strategy execution, (3) using process management tools and best practices to drive
continuous improvement in the performance of value chain activities, (4) installing information and operating systems that help company personnel carry out their

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PREFACE

strategic roles, and (5) using rewards and incentives to encourage good strategy
execution and the achievement of performance targets.
• Chapter 12 completes the 10-step framework with a consideration of the importance
of creating a healthy corporate culture and exercising effective leadership in promoting
good strategy execution. The recurring theme throughout the final three ­chapters
is that executing strategy involves deciding on the specific actions, behaviors, and
conditions needed for a smooth strategy-supportive operation and then following through to get things done and deliver results. The goal here is to ensure that
students understand that the strategy-executing phase is a ­make-things-happen and
make-them-happen-right kind of managerial exercise—one that is ­critical for achieving
operating excellence and reaching the goal of strong company performance.
In this latest edition, we have put our utmost effort into ensuring that the 12 ­chapters
are consistent with the latest and best thinking of academics and practitioners in the
field of strategic management and provide the topical coverage required for both undergraduate and MBA-level strategy courses. The ultimate test of the text, of course, is
the positive pedagogical impact it has in the classroom. If this edition sets a more effective stage for your lectures and does a better job of helping you persuade students that
the discipline of strategy merits their rapt attention, then it will have fulfilled its purpose.

THE CASE COLLECTION
The 27-case lineup in this edition is flush with interesting companies and valuable lessons for students in the art and science of crafting and executing strategy. There’s a
good blend of cases from a length perspective—about two-thirds of the cases are under
15 pages yet offer plenty for students to chew on; and the remainder are detail-rich cases
that call for more sweeping analysis.
At least 25 of the 27 cases involve companies, products, people, or activities that
students will have heard of, know about from personal experience, or can easily identify
with. The lineup includes at least 20 cases that will deepen student understanding of
the special demands of competing in industry environments where product life cycles
are short and competitive maneuvering among rivals is quite active. Twenty-three of the
cases involve situations in which company resources and competitive capabilities play as
large a role in the strategy-making, strategy executing scheme of things as industry and
competitive conditions do. Scattered throughout the lineup are 20 cases concerning nonU.S. companies, globally competitive industries, and/or cross-cultural situations. These
cases, in conjunction with the globalized content of the text chapters, provide abundant
material for ­linking the study of strategic management tightly to the ongoing globalization of the world economy. You’ll also find 8 cases dealing with the strategic problems of
family-owned or relatively small entrepreneurial businesses and 24 cases involving public
companies and situations where students can do further research on the Internet.
The “Guide to Case Analysis” follows the last case. It contains sections on what a
case is, why cases are a standard part of courses in strategy, preparing a case for class
discussion, doing a written case analysis, doing an oral presentation, and using financial
ratio analysis to assess a company’s financial condition. We suggest having students
read this guide before the first class discussion of a case.
A number of cases have accompanying YouTube video segments which are listed in
Section 3 of the Instructor’s Manual, in a separate Video Library within the Instructor’s Resources, and in the Teaching Note for each case.

PREFACE

THE TWO STRATEGY SIMULATION SUPPLEMENTS:
THE BUSINESS STRATEGY GAME AND GLO-BUS
The Business Strategy Game and GLO-BUS: Developing Winning Competitive Strategies—­
two competition-based strategy simulations that are delivered online and that feature
automated processing and grading of performance—are being marketed by the publisher as companion supplements for use with the 23rd edition (and other texts in the
field).

• The Business Strategy Game is the world’s most popular strategy simulation, having

been used by nearly 3,600 different instructors for courses involving close to one
million students at 1,300 university campuses in 76 countries. It features global
competition in the athletic footwear industry, a product/market setting familiar to
students everywhere and one whose managerial challenges are easily grasped. A
freshly updated and much-enhanced version of The Business Strategy Game was
introduced in August 2018.
• GLO-BUS, a newer and somewhat simpler strategy simulation first introduced in
2004 and freshly revamped in 2016 to center on competition in two exciting product categories—wearable miniature action cameras and unmanned camera-equipped
drones suitable for multiple commercial purposes, has been used by 2,100 ­different
instructors for courses involving nearly 360,000 students at 800+ university campuses in 53 countries.

How the Strategy Simulations Work
In both The Business Strategy Game (BSG) and GLO-BUS, class members are divided
into teams of one to five persons and assigned to run a company that competes headto-head against companies run by other class members. In both simulations, companies
compete in a global market arena, selling their products in four geographic regions—
Europe-Africa, North America, Asia-Pacific, and Latin America. Each management
team is called upon to craft a strategy for their company and make decisions relating to
production operations, workforce compensation, pricing and marketing, social responsibility/citizenship, and finance.
Company co-managers are held accountable for their decision making. Each company’s performance is scored on the basis of earnings per share, return-on-equity
­investment, stock price, credit rating, and image rating. Rankings of company performance, along with a wealth of industry and company statistics, are available to ­company
co-managers after each decision round to use in making strategy adjustments and operating decisions for the next competitive round. You can be certain that the market environment, strategic issues, and operating challenges that company co-managers must
contend with are very tightly linked to what your class members will be reading about
in the text chapters. The circumstances that co-managers face in running their simulation company embrace the very concepts, analytical tools, and strategy options they
encounter in the text chapters (this is something you can quickly confirm by skimming
through some of the Exercises for Simulation Participants that appear at the end of
each chapter).
We suggest that you schedule one or two practice rounds and anywhere from four to
10 ­regular (scored) decision rounds (more rounds are better than fewer rounds). Each
decision round represents a year of company operations and will entail roughly two hours

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of time for company co-managers to complete. In traditional 13-week, semester-long
courses, there is merit in scheduling one decision round per week. In courses that run
five to 10 weeks, it is wise to schedule two decision rounds per week for the last several
weeks of the term (­sample course schedules are provided for courses of varying length
and varying ­numbers of class meetings).
When the instructor-specified deadline for a decision round arrives, the simulation
server automatically accesses the saved decision entries of each company, determines
the competitiveness and buyer appeal of each company’s product offering relative to the
other companies being run by students in your class, and then awards sales and market
shares to the competing companies, geographic region by geographic region. The unit
sales volumes awarded to each company are totally governed by

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How its prices compare against the prices of rival brands.
How its product quality compares against the quality of rival brands.
How its product line breadth and selection compare.
How its advertising effort compares.
And so on, for a total of 11 competitive factors that determine unit sales and market shares.

The competitiveness and overall buyer appeal of each company’s product offering
in comparison to the product offerings of rival companies is all-decisive—this algorithmic
feature is what makes BSG and GLO-BUS “competition-based” strategy simulations.
Once each company’s sales and market shares are awarded based on the competitiveness and buyer appeal of its respective overall product offering vis-à-vis those of rival
­companies, the various company and industry reports detailing the outcomes of the
decision round are then generated. Company co-managers can access the results of
the decision round 15 to 20 minutes after the decision deadline.

The Compelling Case for Incorporating
Use of a Strategy Simulation
There are three exceptionally important benefits associated with using a competitionbased simulation in strategy courses taken by seniors and MBA students:

• A three-pronged text-case-simulation course model delivers significantly more teaching-

learning power than the traditional text-case model. Using both cases and a strategy
simulation to drill students in thinking strategically and applying what they read
in the text chapters is a stronger, more effective means of helping them connect
theory with practice and develop better business judgment. What cases do that a
simulation cannot is give class members broad exposure to a variety of companies
and industry situations and insight into the kinds of strategy-related problems managers face. But what a competition-based strategy simulation does far better than
case analysis is thrust class members squarely into an active, hands-on managerial
role where they are totally responsible for assessing market conditions, determining
how to respond to the actions of competitors, forging a long-term direction and
strategy for their company, and making all kinds of operating decisions. Because
they are held fully accountable for their decisions and their company’s performance, co-managers are strongly motivated to dig deeply into company operations,
probe for ways to be more cost-efficient and competitive, and ferret out strategic
moves and decisions calculated to boost company performance. Consequently,

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incorporating both case assignments and a strategy simulation to develop the skills
of class members in thinking strategically and applying the concepts and tools of strategic analysis turns out to be more pedagogically powerful than relying solely on case
assignments—there’s stronger retention of the lessons learned and better achievement of
course learning objectives.
To provide you with quantitative evidence of the learning that occurs with using
The Business Strategy Game or GLO-BUS, there is a built-in Learning Assurance
Report showing how well each class member performs on nine skills/learning
measures versus tens of thousands of students worldwide who have completed the
simulation in the past 12 months.
• The competitive nature of a strategy simulation arouses positive energy and steps
up the whole tempo of the course by a notch or two. Nothing sparks class excitement quicker or better than the concerted efforts on the part of class members
at each decision round to achieve a high industry ranking and avoid the perilous
consequences of being outcompeted by other class members. Students really enjoy
taking on the role of a manager, running their own company, crafting strategies,
­making all kinds of operating decisions, trying to outcompete rival companies, and
getting immediate feedback on the resulting company performance. Lots of backand-forth ­chatter occurs when the results of the latest simulation round become
available and ­co-managers renew their quest for strategic moves and actions that
will strengthen company performance. Co-managers become emotionally invested
in running their company and figuring out what strategic moves to make to boost
their company’s performance. Interest levels climb. All this stimulates learning and
causes ­students to see the practical relevance of the subject matter and the benefits
of taking your course.
As soon as your students start to say, “Wow! Not only is this fun but I am learning a lot,” which they will, you have won the battle of engaging students in the subject matter and moved the value of taking your course to a much higher plateau in
the business school curriculum. This translates into a livelier, richer learning experience from a student perspective and better instructor-course evaluations.
• Use of a fully automated online simulation reduces the time instructors spend on
course preparation, course administration, and grading. Since the simulation exercise
involves a 20- to 30-hour workload for student teams (roughly two hours per decision round times 10 to 12 rounds, plus optional assignments), simulation adopters
often compensate by trimming the number of assigned cases from, say, 10 to 12 to
perhaps 4 to 6. This significantly reduces the time instructors spend reading cases,
studying teaching notes, and otherwise getting ready to lead class discussion of
a case or grade oral team presentations. Course preparation time is further cut
because you can use several class days to have students bring their laptops to class
or meet in a computer lab to work on upcoming decision rounds or a three-year
strategic plan (in lieu of lecturing on a chapter or covering an additional assigned
case). Not only does use of a simulation permit assigning fewer cases, but it also
permits you to eliminate at least one assignment that entails considerable grading on your part. Grading one less written case or essay exam or other written
assignment saves enormous time. With BSG and GLO-BUS, grading is effortless
and takes only minutes; once you enter percentage weights for each assignment in
your online grade book, a suggested overall grade is calculated for you. You’ll be
pleasantly surprised—and quite pleased—at how little time it takes to gear up for and
administer The Business Strategy Game or GLO-BUS.

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In sum, incorporating use of a strategy simulation turns out to be a win–win proposition for both students and instructors. Moreover, a very convincing argument can be
made that a competition-based strategy simulation is the single most effective teaching/
learning tool that instructors can employ to teach the discipline of business and competitive
strategy, to make learning more enjoyable, and to promote better achievement of course
learning objectives.

A Bird’s-Eye View of The Business Strategy Game
The setting for The Business Strategy Game (BSG) is the global athletic footwear industry
(there can be little doubt in today’s world that a globally competitive strategy simulation
is vastly superior to a simulation with a domestic-only setting). Global market demand for
footwear grows at the rate of seven to nine percent annually for the first five years and five
to seven percent annually for the second five years. However, market growth rates vary by
geographic region—North America, Latin America, Europe-Africa, and Asia-Pacific.
Companies begin the simulation producing branded and private-label footwear in
two plants, one in North America and one in Asia. They have the option to establish
production facilities in Latin America and Europe-Africa. Company co-managers exercise control over production costs on the basis of the styling and quality they opt to
manufacture, plant location (wages and incentive compensation vary from region
to region), the use of best practices and Six Sigma programs to reduce the production
of defective footwear and to boost worker productivity, and compensation practices.
All newly produced footwear is shipped in bulk containers to one of four geographic
distribution centers. All sales in a geographic region are made from footwear inventories in that region’s distribution center. Costs at the four regional distribution ­centers
are a function of inventory storage costs, packing and shipping fees, import tariffs
paid on incoming pairs shipped from foreign plants, and exchange rate impacts. At
the start of the simulation, import tariffs average $4 per pair in North America, $6 in
­Europe-Africa, $8 per pair in Latin America, and $10 in the Asia-Pacific region. Instructors have the option to alter tariffs as the game progresses.
Companies market their brand of athletic footwear to footwear retailers worldwide and to individuals buying online at the company’s website. Each company’s sales
and market share in the branded footwear segments hinge on its competitiveness on
13 ­factors: attractive pricing, footwear styling and quality, product line breadth, advertising, use of mail-in rebates, appeal of celebrities endorsing a company’s brand, success in convincing footwear retailers to carry its brand, number of weeks it takes to fill
retailer orders, effectiveness of a company’s online sales effort at its website, and brand
reputation. Sales of private-label footwear hinge solely on being the low-price bidder.
All told, company co-managers make as many as 57 types of decisions each period
that cut across production operations (up to 11 decisions per plant, with a maximum
of four plants), the addition of facility space, equipment, and production improvement
options (up to eight decisions per plant), worker compensation and training (up to
six ­decisions per plant), shipping and distribution center operations (five decisions per
­geographic region), pricing and marketing (up to nine decisions in four geographic
regions), bids to sign ­celebrities (two decision entries per bid), financing of company
operations (up to eight decisions), and corporate social responsibility and environmental sustainability (up to eight decisions). Plus, there are 10 entries for each region pertaining to assumptions about the upcoming-year actions and competitive efforts of rival
companies that factor directly into the forecasts of a company’s unit sales, revenues,
and market share in each of the four geographic regions.

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Each time company co-managers make a decision entry, an assortment of on-screen
calculations instantly shows the projected effects on unit sales, revenues, market shares,
unit costs, profit, earnings per share, ROE, and other operating statistics. The on-screen
calculations help team members evaluate the relative merits of one decision entry versus another and put together a promising strategy.
Companies can employ any of the five generic competitive strategy options in selling
branded footwear—low-cost leadership, differentiation, best-cost provider, focused low
cost, and focused differentiation. They can pursue essentially the same strategy worldwide or craft slightly or very different strategies for the Europe-Africa, Asia-Pacific,
Latin America, and North America markets. They can strive for competitive advantage
based on more advertising, a wider selection of models, more appealing styling/quality,
bigger rebates, and so on.
Any well-conceived, well-executed competitive approach is capable of succeeding, provided it is not overpowered by the strategies of competitors or defeated by the presence of
too many copycat strategies that dilute its effectiveness. The challenge for each company’s
management team is to craft and execute a competitive strategy that produces good
performance on five measures: earnings per share, return on equity investment, stock
price appreciation, credit rating, and brand image.
All activity for The Business Strategy Game takes place at www.bsg-online.com.

A Bird’s-Eye View of GLO-BUS
In GLO-BUS, class members run companies that are in a neck-and-neck race for global
market leadership in two product categories: (1) wearable video cameras smaller than
a teacup that deliver stunning video quality and have powerful photo capture capabilities (comparable to those designed and marketed by global industry leader GoPro and
numerous others) and (2) sophisticated camera-equipped copter drones that incorporate a company designed and assembled action-capture camera and that are sold to
commercial enterprises for prices in the $850 to 2,000+ range. Global market demand
for action cameras grows at the rate of six to eight percent annually for the first five
years and four to six percent annually for the second five years. Global market demand
for commercial drones grows briskly at rates averaging 18 percent for the first two years,
then gradually slows over eight years to a rate of four to six percent.
Companies assemble action cameras and drones of varying designs and performance
capabilities at a Taiwan facility and ship finished goods directly to buyers in North ­America,
Asia-Pacific, Europe-Africa, and Latin America. Both products are assembled usually
within two weeks of being received and are then shipped to buyers no later than two to
three days after assembly. Companies maintain no finished goods inventories and all parts
and components are delivered by suppliers on a just-in-time basis (which ­eliminates the
need to track inventories and simplifies the accounting for plant operations and costs).
Company co-managers determine the quality and performance features of the cameras and drones being assembled. They impact production costs by raising/lowering
specifications for parts/components and expenditures for product R&D, adjusting work
force compensation, spending more/less on worker training and productivity improvement, lengthening/shortening warranties offered (which affects warranty costs), and
how cost-efficiently they manage assembly operations. They have options to manage/
control selling and certain other costs as well.
Each decision round, company co-managers make some 50 types of decisions relating to the design and performance of the company’s two products (21 decisions, 10 for
cameras and 11 for drones), assembly operations and workforce compensation (up to eight

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decision entries for each product), pricing and marketing (seven decisions for cameras and
five for drones), corporate social responsibility and citizenship (up to six decisions),
and the financing of company operations (up to eight decisions). In addition, there
are 10 entries for ­cameras and seven entries for drones involving assumptions about
the competitive actions of rivals; these entries help company co-managers to make
more accurate forecasts of their company’s unit sales (so they have a good idea of how
many cameras and drones will need to be assembled each year to fill customer orders).
Each time co-managers make a decision entry, an ­assortment of on-screen calculations
instantly shows the projected effects on unit sales, revenues, market shares, total profit,
earnings per share, ROE, costs, and other operating outcomes. All of these on-screen
calculations help co-managers evaluate the relative merits of one decision entry versus
another. Company managers can try out as many different decision combinations as
they wish in stitching the separate decision entries into a cohesive whole that is projected to produce good company performance.
Competition in action cameras revolves around 11 factors that determine each company’s unit sales/market share:
1. How each company’s average wholesale price to retailers compares against the allcompany average wholesale prices being charged in each geographic region.
2. How each company’s camera performance and quality compares against industrywide camera performance/quality.
3. How the number of week-long sales promotion campaigns a company has in each
region compares against the regional average number of weekly promotions.
4. How the size of each company’s discounts off the regular wholesale prices during sales
promotion campaigns compares against the regional average promotional discount.
5. How each company’s annual advertising expenditures compare against regional
average advertising expenditures.
6. How the number of models in each company’s camera line compares against the
industry-wide average number of models.
7. The number of retailers stocking and merchandising a company’s brand in each region.
8. Annual expenditures to support the merchandising efforts of retailers stocking a
company’s brand in each region.
9. The amount by which a company’s expenditures for ongoing improvement and
updating of its company’s website in a region is above/below the all-company
regional average expenditure.
10. How the length of each company’s camera warranties compare against the warranty periods of rival companies.
11. How well a company’s brand image/reputation compares against the brand images/
reputations of rival companies.
Competition among rival makers of commercial copter drones is more narrowly
focused on just nine sales-determining factors:
1. How a company’s average retail price for drones at the company’s website in each
region compares against the all-company regional average website price.
2. How each company’s drone performance and quality compares against the all-­company
average drone performance/quality.
3. How the number of models in each company’s drone line compares against the
industry-wide average number of models.

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4. How each company’s annual expenditures to recruit/support third-party online
electronics retailers in merchandising its brand of drones in each region compares
against the regional average.
5. The amount by which a company’s price discount to third-party online retailers is
above/below the regional average discounted price.
6. How well a company’s expenditures for search engine advertising in a region compares against the regional average.
7. How well a company’s expenditures for ongoing improvement and updating of its
website in a region compares against the regional average.
8. How the length of each company’s drone warranties in a region compares against
the regional average warranty period.
9. How well a company’s brand image/reputation compares against the brand images/
reputations of rival companies.
Each company typically seeks to enhance its performance and build competitive
advantage via its own custom-tailored competitive strategy based on more ­attractive pricing, greater advertising, a wider selection of models, more appealing performance/­quality,
longer warranties, a better image/reputation, and so on. The greater the ­differences in
the overall competitiveness of the product offerings of rival companies, the bigger the differences in their resulting sales volumes and market shares. Conversely, the smaller the
overall competitive differences in the product offerings of rival ­companies, the smaller
the differences in sales volumes and market shares. This algorithmic approach is what
makes GLO-BUS a “competition-based” strategy simulation and accounts for why the
sales and market share outcomes for each decision round are always unique to the particular
strategies and decision combinations employed by the competing companies.
As with BSG, all the various generic competitive strategy options—low-cost leadership,
differentiation, best-cost provider, focused low-cost, and focused differentiation—are
viable choices for pursuing competitive advantage and good company performance. A company can have a strategy aimed at being the clear market leader in either action cameras
or drones or both. It can focus its competitive efforts on one or two or three geographic
regions or strive to build strong market positions in all four geographic regions. It can
pursue essentially the same strategy worldwide or craft customized strategies for the
Europe-Africa, Asia-Pacific, Latin America, and North America markets. Just as with
The Business Strategy Game, most any well-conceived, well-executed competitive approach
is capable of succeeding, provided it is not overpowered by the strategies of competitors or
defeated by the presence of too many copycat strategies that dilute its effectiveness.
The challenge for each company’s management team is to craft and execute a competitive strategy that produces good performance on five measures: earnings per share,
return on equity investment, stock price appreciation, credit rating, and brand image.
All activity for GLO-BUS occurs at www.glo-bus.com.
Special Note: The time required of company co-managers to complete each decision
round in GLO-BUS is typically about 15 to 30 minutes less than for The Business Strategy Game because

(a) there are only 8 market segments (versus 12 in BSG),
(b) co-managers have only one assembly site to operate (versus potentially as many as

four plants in BSG, one in each geographic region), and
(c) newly assembled cameras and drones are shipped directly to buyers, eliminating
the need to manage finished goods inventories and operate distribution centers.

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Administration and Operating Features
of the Two Simulations
The Internet delivery and user-friendly designs of both BSG and GLO-BUS make them
incredibly easy to administer, even for first-time users. And the menus and controls are
so similar that you can readily switch between the two simulations or use one in your
undergraduate class and the other in a graduate class. If you have not yet used either of
the two simulations, you may find the following of particular interest:

• Setting up the simulation for your course is done online and takes about 10 to

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15 minutes. Once setup is completed, no other administrative actions are required
beyond those of moving participants to a different team (should the need arise)
and monitoring the progress of the simulation (to whatever extent desired).
Participant’s Guides are delivered electronically to class members at the website—
students can read the guide on their monitors or print out a copy, as they prefer.
There are two to four minute Video Tutorials scattered throughout the software
(including each decision screen and each page of each report) that provide ondemand guidance to class members who may be uncertain about how to proceed.
Complementing the Video Tutorials are detailed and clearly written Help ­sections
explaining “all there is to know” about (a) each decision entry and the relevant causeeffect relationships, (b) the information on each page of the Industry Reports, and
(c) the numbers presented in the Company Reports. The Video Tutorials and the
Help screens allow company co-managers to figure things out for themselves, thereby
curbing the need for students to ask the instructor “how things work.”
Team members running the same company who are logged in simultaneously on
different computers at different locations can click a button to enter Collaboration
Mode, enabling them to work collaboratively from the same screen in viewing
reports and making decision entries, and click a second button to enter Audio
Mode, letting them talk to one another and hold an online meeting.
∘ When in “Collaboration Mode,” each team member sees the same screen at
the same time as all other team members who are logged in and have joined
Collaboration Mode. If one team member chooses to view a particular decision
screen, that same screen appears on the monitors for all team members in Collaboration Mode.
∘ Each team member controls their own color-coded mouse pointer (with their
first-name appearing in a color-coded box linked to their mouse pointer) and can
make a decision entry or move the mouse to point to particular on-screen items.
∘ A decision entry change made by one team member is seen by all, in real time,
and all team members can immediately view the on-screen calculations that
result from the new decision entry.
∘ If one team member wishes to view a report page and clicks on the menu link to
the desired report, that same report page will immediately appear for the other
team members engaged in collaboration.
∘ Use of Audio Mode capability requires that each team member work from a computer with a built-in microphone (if they want to be heard by their team members) and speakers (so they may hear their teammates) or else have a headset
with a microphone that they can plug into their desktop or laptop. A headset is
recommended for best results, but most laptops now are equipped with a built-in
microphone and speakers that will support use of our new voice chat feature.

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∘ Real-time VoIP audio chat capability among team members who have entered
both the Audio Mode and the Collaboration Mode is a tremendous boost in
functionality that enables team members to go online simultaneously on computers at different locations and conveniently and effectively collaborate in running their simulation company.
∘ In addition, instructors have the capability to join the online session of any
company and speak with team members, thus circumventing the need for team
members to arrange for and attend a meeting in the instructor’s office. Using
the standard menu for administering a particular industry, instructors can connect with the company desirous of assistance. Instructors who wish not only to
talk but also to enter Collaboration (highly recommended because all attendees
are then viewing the same screen) have a red-colored mouse pointer linked to a
red box labeled Instructor.
Without a doubt, the Collaboration and Voice-Chat capabilities are hugely valuable
for students enrolled in online and distance-learning courses where meeting face-toface is impractical or time-consuming. Likewise, the instructors of online and distancelearning courses will appreciate having the capability to join the online meetings of
particular company teams when their advice or assistance is requested.

• Both simulations work equally well for online courses and in-person classes.
• Participants and instructors are notified via e-mail when the results are ready (usu•

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ally about 15 to 20 minutes after the decision round deadline specified by the
instructor/game administrator).
Following each decision round, participants are provided with a complete set of
reports—a six-page Industry Report, a Competitive Intelligence report for each geographic region that includes strategic group maps and a set of Company Reports
(income statement, balance sheet, cash flow statement, and assorted production,
marketing, and cost statistics).
Two “open-book” multiple-choice tests of 20 questions are built into each simulation. The quizzes, which you can require or not as you see fit, are taken online
and automatically graded, with scores reported instantaneously to participants and
automatically recorded in the instructor’s electronic grade book. Students are automatically provided with three sample questions for each test.
Both simulations contain a three-year strategic plan option that you can assign.
Scores on the plan are automatically recorded in the instructor’s online grade
book.
At the end of the simulation, you can have students complete online peer evaluations (again, the scores are automatically recorded in your online grade book).
Both simulations have a Company Presentation feature that enables each team
of company co-managers to easily prepare PowerPoint slides for use in describing
their strategy and summarizing their company’s performance in a presentation to
either the class, the instructor, or an “outside” board of directors.
A Learning Assurance Report provides you with hard data concerning how well your
students performed vis-à-vis students playing the simulation worldwide over the past
12 months. The report is based on nine measures of student proficiency, business
know-how, and decision-making skill and can also be used in evaluating the extent
to which your school’s academic curriculum produces the desired degree of student learning insofar as accreditation standards are concerned.

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For more details on either simulation, please consult Section 2 of the Instructor’s
Manual accompanying this text or register as an instructor at the simulation websites
(www.bsg-online.com and www.glo-bus.com) to access even more comprehensive information. You should also consider signing up for one of the webinars that the simulation
authors conduct several times each month (sometimes several times weekly) to demonstrate how the software works, walk you through the various features and menu options,
and answer any questions. You have an open invitation to call the senior author of this
text at (205) 722-9145 to arrange a personal demonstration or talk about how one of the
simulations might work in one of your courses. We think you’ll be quite impressed with the
cutting-edge capabilities that have been programmed into The Business Strategy Game and
GLO-BUS, the simplicity with which both simulations can be administered, and their exceptionally tight connection to the text chapters, core concepts, and standard analytical tools.

RESOURCES AND SUPPORT MATERIALS FOR THE
23RD EDITION
For Students
Key Points Summaries

At the end of each chapter is a synopsis of the core concepts, analytical tools, and other key points discussed in the chapter. These chapter-end
synopses, along with the core concept definitions and margin notes scattered throughout each chapter, help students focus on basic strategy principles, digest the messages
of each chapter, and prepare for tests.

Two Sets of Chapter-End Exercises Each chapter concludes with two sets of exer-

cises. The Assurance of Learning Exercises are useful for helping students prepare for
class discussion and to gauge their understanding of the material. The Exercises for
Simulation Participants are designed expressly for use in class which incorporate the use
of a simulation. These exercises explicitly connect the chapter content to the simulation
company the students are running. Even if they are not assigned by the instructor, they
can provide helpful practice for students as a study aid.

Connect™

The 23rd edition takes full advantage of Connect™, a personalized
teaching and learning tool. The Connect™ package for this edition includes several
robust and valuable features that simplify the task of assigning and grading three types
of exercises for students:

• Autograded chapter quizzes that students can take to measure their grasp of the

material presented in each of the 12 chapters.
• A variety of interactive exercises for each of the 12 chapters that drill students
in the use and application of the concepts and tools of strategic analysis, including selected Assurance of Learning Exercises and newly integrated Exercises for
Simulation Participants.
• Case Exercises for 14 of the 27 cases in this edition that require students to work
through answers to a select number of the assignment questions for the case. These
exercises have multiple components and are tailored to match the circumstances
presented in each case, calling upon students to do whatever strategic thinking and

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strategic analysis are called for to arrive at pragmatic, analysis-based action recommendations for improving company performance.
All Connect™ exercises are automatically graded (with the exception of a few
select Exercises for Simulation Participants that entail answers in the form of short
essays), thereby simplifying the task of evaluating each class member’s performance
and ­monitoring the learning outcomes. The progress-tracking function built into Connect™ enables you to

• View scored work immediately and track individual or group performance with

assignment and grade reports.
• Access an instant view of student or class performance relative to learning objectives.
• Collect data and generate reports required by many accreditation organizations,
such as AACSB International.

SmartBook 2.0® SmartBook 2.0 is the first and only adaptive reading experience

designed to change the way students read and learn. It creates a personalized reading
experience by highlighting the most impactful concepts a student needs to learn at that
moment in time. As a student engages with SmartBook, the reading experience continuously adapts by highlighting content based on what the student knows and doesn’t
know. This ensures that the focus is on the content he or she needs to learn, while
simultaneously promoting long-term retention of material. Use SmartBook’s ­real-time
reports to quickly identify the concepts that require more attention from individual
students–or the entire class. The end result? Students are more engaged with course
content, can better prioritize their time, and come to class ready to participate.

For Instructors
Assurance of Learning Aids

Each chapter begins with a set of Learning Objectives, which are tied directly to the material in the text meant to address these objectives
with helpful signposts. At the conclusion of each chapter, there is a set of Assurance
of Learning Exercises that can be used as the basis for class discussion, oral presentation assignments, short written reports, and substitutes for case assignments. Similarly,
there is a set of Exercises for Simulation Participants that are designed expressly for
use by adopters who have incorporated use of a simulation and want to go a step further in tightly and explicitly connecting the chapter content to the simulation company
their students are running. New to this edition is the incorporation of these assignable
­Exercises for Simulation Participants within Connect. The questions in both sets of
exercises (along with those Illustration Capsules that qualify as “mini-cases”) can be
used to round out the rest of a 75-­minute class period should your lecture on a chapter
last for only 50 minutes.

Instructor Library

The Connect Instructor Library is your repository for additional
resources to improve student engagement in and out of class. You can select and use
any asset that enhances your lecture.

Instructor’s Manual The accompanying IM contains:
• A section on suggestions for organizing and structuring your course.
• Sample syllabi and course outlines.

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A set of lecture notes on each chapter.
Answers to the chapter-end Assurance of Learning Exercises.
A test bank for all 12 chapters.
A comprehensive case teaching note for each of the 27 cases. These teaching
notes are filled with suggestions for using the case effectively, have very thorough, analysis-based answers to the suggested assignment questions for the case,
and contain an epilogue detailing any important developments since the case
was written.

Test Builder

The accompanying Test Bank, which contains over 900 multiple
choice and short answer/essay questions, is available in Connect™ via Test Builder.
Test Builder is a cloud-based tool that enables instructors to format tests that can
be printed or administered within an LMS. Test Builder offers a modern, streamlined
interface for easy content configuration that matches course needs, without requiring a
download. Test Builder provides a secure interface for better protection of content and
allows for just-in-time updates to flow directly into assessments.

PowerPoint Slides

To facilitate delivery preparation of your lectures and to serve
as chapter outlines, you’ll have access to approximately 500 colorful and professionallooking slides displaying core concepts, analytical procedures, key points, and all the
figures in the text chapters.

CREATE™ is McGraw-Hill’s custom-publishing program where you can access full-

length readings and cases that accompany Crafting and Executing Strategy: The Quest
for a Competitive Advantage (http://create.mheducation.com/thompson). Through
Create™, you will be able to select from 30 readings that go specifically with this textbook. These include cases and readings from Harvard, MIT, and much more! You can
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The Business Strategy Game and GLO-BUS Online Simulations

Using one
of the two companion simulations is a powerful and constructive way of emotionally
connecting students to the subject matter of the course. We know of no more effective way to arouse the competitive energy of students and prepare them for the challenges of real-world business decision making than to have them match strategic wits
with classmates in running a company in head-to-head competition for global market
leadership.

ACKNOWLEDGMENTS
We heartily acknowledge the contributions of the case researchers whose case-writing
efforts appear herein and the companies whose cooperation made the cases possible. To
each one goes a very special thank-you. We cannot overstate the importance of timely,

PREFACE

carefully researched cases in contributing to a substantive study of strategic management issues and practices.
A great number of colleagues and students at various universities, business acquaintances, and people at McGraw-Hill provided inspiration, encouragement, and counsel
during the course of this project. Like all text authors in the strategy field, we are intellectually indebted to the many academics whose research and writing have blazed new
trails and advanced the discipline of strategic management. In addition, we’d like to
thank the following reviewers who provided seasoned advice and splendid suggestions
over the years for improving the chapters:
Robert B. Baden, Edward Desmarais, Stephen F. Hallam, Joy Karriker, Wendell
Seaborne, Joan H. Bailar, David Blair, Jane Boyland, William J. Donoher,
Stephen A. Drew, Jo Anne Duffy, Alan Ellstrand, Susan Fox-Wolfgramm, Rebecca
M. Guidice, Mark Hoelscher, Sean D. Jasso, Xin Liang, Paul Mallette, Dan
­Marlin, Raza Mir, Mansour Moussavi, James D. Spina, Monica A. Zimmerman,
Dennis R. Balch, Jeffrey R. Bruehl, Edith C. Busija, Donald A. Drost, Randall
­Harris, Mark Lewis Hoelscher, Phyllis Holland, James W. Kroeger, Sal Kukalis,
Brian W. Kulik, Paul Mallette, Anthony U. Martinez, Lee Pickler, Sabine Reddy,
Thomas D. ­Schramko, V. Seshan, Charles Strain, Sabine Turnley, S. Stephen
Vitucci, Andrew Ward, Sibin Wu, Lynne Patten, Nancy E. Landrum, Jim Goes,
Jon ­Kalinowski, Rodney M. Walter, Judith D. Powell, Seyda Deligonul, David
Flanagan, Esmerlda Garbi, Mohsin Habib, Kim Hester, Jeffrey E. McGee, Diana
J. Wong, F. William Brown, Anthony F. Chelte, Gregory G. Dess, Alan B. Eisner,
John George, Carle M. Hunt, Theresa Marron-Grodsky, Sarah Marsh, Joshua
D. Martin, William L. Moore, Donald Neubaum, George M. Puia, Amit Shah,
Lois M. Shelton, Mark Weber, Steve Barndt, J. Michael Geringer, Ming-Fang Li,
Richard Stackman, Stephen Tallman, Gerardo R. Ungson, James Boulgarides,
Betty Diener, Daniel F. Jennings, David Kuhn, Kathryn Martell, Wilbur Mouton,
Bobby Vaught, Tuck Bounds, Lee Burk, Ralph Catalanello, William Crittenden,
Vince Luchsinger, Stan Mendenhall, John Moore, Will Mulvaney, Sandra Richard,
Ralph Roberts, Thomas Turk, Gordon Von Stroh, Fred Zimmerman, S. A. Billion,
Charles Byles, Gerald L. Geisler, Rose Knotts, Joseph Rosenstein, James B.
Thurman, Ivan Able, W. Harvey Hegarty, Roger Evered, Charles B. Saunders,
Rhae M. Swisher, Claude I. Shell, R. Thomas Lenz, Michael C. White, Dennis
Callahan, R. Duane Ireland, William E. Burr II, C. W. Millard, Richard Mann,
Kurt Christensen, Neil W. Jacobs, Louis W. Fry, D. Robley Wood, George J. Gore,
and William R. Soukup.
We owe a debt of gratitude to Professors Catherine A. Maritan, Jeffrey A. ­Martin,
Richard S. Shreve, and Anant K. Sundaram for their helpful comments on various
chapters. We’d also like to thank the following students of the Tuck School of Business for their assistance with the revisions: Alen A. Ameni, Dipti Badrinath, Stephanie
K. Berger, Courtney D. Bragg, Katie Coster, Jacob Crandall, Robin Daley, Kathleen
T. Durante, Shawnda Lee Duvigneaud, Isaac E. Freeman, Vedrana B. Greatorex,
­Brittany J. Hattingh, Sadé M. Lawrence, Heather Levy, Margaret W. Macauley, Ken
­Martin, Brian R. McKenzie, Mathew O’Sullivan, Sara Paccamonti, Byron Peyster,
­Jeremy Reich, Carry S. Resor, Edward J. Silberman, David Washer, and Lindsey ­Wilcox.
And we’d like to acknowledge the help of Dartmouth students Avantika ­Agarwal,
Charles K. Anumonwo, Maria Hart, Meaghan I. Haugh, Artie Santry, as well as Tuck
staff member Doreen Aher.

xxvii

xxviii

PREFACE

As always, we value your recommendations and thoughts about the book. Your comments regarding coverage and contents will be taken to heart, and we always are grateful for the time you take to call our attention to printing errors, deficiencies, and other
shortcomings. Please e-mail us at athompso@cba.ua.edu, margaret.a.peteraf@
tuck.dartmouth.edu, john.gamble@tamucc.edu, or astrickl@cba.ua.edu.
Arthur A. Thompson
Margaret A. Peteraf
John E. Gamble
A. J. Strickland

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Brief Contents
PART 1 Concepts and Techniques for Crafting and Executing Strategy
Section A: Introduction and Overview

1
2

What Is Strategy and Why Is It Important?
Charting a Company’s Direction

2

20

Section B: Core Concepts and Analytical Tools

3
4

Evaluating a Company’s External Environment

50

Evaluating a Company’s Resources, Capabilities, and Competitiveness

90

Section C: Crafting a Strategy

5
6
7
8
9

The Five Generic Competitive Strategies

126

Strengthening a Company’s Competitive Position

156

Strategies for Competing in International Markets
Corporate Strategy

186

222

Ethics, Corporate Social Responsibility, Environmental Sustainability, and
Strategy 266

Section D: Executing the Strategy

10
11
12

Building an Organization Capable of Good Strategy Execution
Managing Internal Operations

296

328

Corporate Culture and Leadership

352

PART 2 Cases in Crafting and Executing Strategy
Section A: Crafting Strategy in Single-Business Companies
®

®

®

®

xxxii

1
2
3
4

Airbnb in 2020

5

Macy’s, Inc.: Will Its Strategy Allow It to Survive in the Changing Retail
Sector? C51

6

C2

Competition in the Craft Beer Industry in 2020

C7

Costco Wholesale in 2020: Mission, Business Model, and Strategy

C18

Ford Motor Company: Will the Company’s Strategic Moves Restore its
Competitiveness and Financial Performance? C43

TOMS Shoes: Expanding Its Successful One For One Business Model

C59

BRIEF CONTENTS

7
8
9
10
11
12
13
14
	 15
16
17
18
19
20
21
22

xxxiii

lululemon athletica’s Strategy in 2020: Is the Recent
Growth in Retail Stores, Revenues, and Profitability
Sustainable? C68

®

Under Armour’s Strategy in 2020: Can It Revive
Sales and Profitability in Its Core North American
Market? C86

®

Spotify in 2020: Can the Company Remain
Competitive? C112
Beyond Meat, Inc.

C124

®

Netflix’s 2020 Strategy for Battling Rivals in the Global
Market for Streamed Video Subscribers C140

®

Twitter Inc. in 2020

®

C161

Yeti in 2020: Can Brand Name and Innovation Keep it
Ahead of the Competition? C173
GoPro in 2020: Have its Turnaround Strategies
Failed? C184
Publix Super Markets: Its Strategy in the U.S.
Supermarket and Grocery Store Industry C198
Tesla’s Strategy in 2020: Can It Deliver Sustained
Profitability? C212

®

Unilever’s Purpose-led Brand Strategy: Can Alan Jope
Balance Purpose and Profits? C238
Domino’s Pizza: Business Continuity Strategy during
the Covid-19 Pandemic C249
Burbank Housing: Building from the Inside Out

C260

Boeing 737 MAX: What Response Strategy is
Needed to Ensure Passenger Safety and Restore the
Company’s Reputation? C273
The Walt Disney Company: Its Diversification Strategy
in 2020 C279

®

Robin Hood

®

C293

Section B: Crafting Strategy in Diversified Companies

23
24

Southwest Airlines in 2020: Culture, Values, and
Operating Practices C295
Uber Technologies in 2020: Is the Gig Economy Labor
Force Working for Uber? C315

Section C: Implementing and Executing Strategy

25

Starbucks in 2020: Is the Company on Track
to Achieve Attractive Growth and Operational
Excellence? C325

®

BRIEF CONTENTS

xxxiv
®

26
27

Nucor Corporation in 2020: Pursuing Efforts to Grow Sales and Market
Share Despite Tough Market Conditions C354
Eliminating Modern Slavery from Supply Chains: Can Nestlé Lead the
Way? C389

Guide to Case Analysis CA-1
INDEXES

Company I-1
Name I-9
Subject I-15

Contents
PART 1 Concepts and Techniques for

Crafting and Executing Strategy

1

Section A: Introduction and Overview

1 What Is Strategy and Why Is It Important? 2
WHAT DO WE MEAN BY STRATEGY? 4

Strategy Is about Competing Differently 4
Strategy and the Quest for Competitive Advantage 5
Why a Company’s Strategy Evolves over Time 8
A Company’s Strategy Is Partly Proactive and Partly Reactive
Strategy and Ethics: Passing the Test of Moral Scrutiny 9

9

A COMPANY’S STRATEGY AND ITS BUSINESS MODEL 11
WHAT MAKES A STRATEGY A WINNER? 12
WHY CRAFTING AND EXECUTING STRATEGY ARE IMPORTANT TASKS 14
Good Strategy + Good Strategy Execution =
Good Management 15

THE ROAD AHEAD 15

ILLUSTRATION CAPSULES
1.1 Apple Inc.: Exemplifying a Successful Strategy

7

1.2 Pandora, SiriusXM, and Over-the-Air Broadcast Radio:
Three Contrasting Business Models 13

2 Charting a Company’s Direction 20
WHAT DOES THE STRATEGY-MAKING, STRATEGY-EXECUTING
PROCESS ENTAIL? 22
STAGE 1: DEVELOPING A STRATEGIC VISION, MISSION STATEMENT,
AND SET OF CORE VALUES 24
Developing a Strategic Vision 24
Communicating the Strategic Vision

25

Expressing the Essence of the Vision in a Slogan 27
Why a Sound, Well-Communicated Strategic Vision Matters

27

Developing a Company Mission Statement 27
Linking the Vision and Mission with Company Values

28

STAGE 2: SETTING OBJECTIVES 31

Setting Stretch Objectives 31
What Kinds of Objectives to Set

31
xxxv

xxxvi

CONTENTS

The Need for a Balanced Approach to Objective Setting
Setting Objectives for Every Organizational Level 34

32

STAGE 3: CRAFTING A STRATEGY 35

Strategy Making Involves Managers at All Organizational Levels
A Company’s Strategy-Making Hierarchy 36
Uniting the Strategy-Making Hierarchy 39
A Strategic Vision + Mission + Objectives +
Strategy = A Strategic Plan 39

35

STAGE 4: EXECUTING THE STRATEGY 40
STAGE 5: EVALUATING PERFORMANCE AND
INITIATING CORRECTIVE ADJUSTMENTS 41
CORPORATE GOVERNANCE: THE ROLE OF THE
BOARD OF DIRECTORS IN THE STRATEGY-CRAFTING,
STRATEGY-EXECUTING PROCESS 41

ILLUSTRATION CAPSULES
2.1 Examples of Strategic Visions—How Well Do They Measure Up?
2.2 TOMS Shoes: A Mission with a Company
2.3 Examples of Company Objectives

26

30

33

2.4 Corporate Governance Failures at Volkswagen

44

Section B: Core Concepts and Analytical Tools

3 Evaluating a Company’s External Environment 50
ASSESSING THE COMPANY’S INDUSTRY AND
COMPETITIVE ENVIRONMENT 52
ANALYZING THE COMPANY’S MACRO-ENVIRONMENT 53
ASSESSING THE COMPANY’S INDUSTRY AND
COMPETITIVE ENVIRONMENT 57
The Five Forces Framework 57
Competitive Pressures Created by the Rivalry
among Competing Sellers 57
The Choice of Competitive Weapons 61
Competitive Pressures Associated with the Threat
of New Entrants 61

Whether Entry Barriers Are High or Low 62
The Expected Reaction of Industry Members in Defending against New Entry

63

Competitive Pressures from the Sellers of Substitute Products
Competitive Pressures Stemming from Supplier
Bargaining Power 67
Competitive Pressures Stemming from Buyer
Bargaining Power and Price Sensitivity 69
Whether Buyers Are More or Less Price-Sensitive

71

Is the Collective Strength of the Five Competitive
Forces Conducive to Good Profitability? 72
Matching Company Strategy to Competitive Conditions

COMPLEMENTORS AND THE VALUE NET 73

73

64

CONTENTS

INDUSTRY DYNAMICS AND THE FORCES DRIVING CHANGE 74

Identifying the Forces Driving Industry Change 75
Assessing the Impact of the Forces Driving Industry Change 78
Adjusting the Strategy to Prepare for the Impacts of Driving Forces

78

STRATEGIC GROUP ANALYSIS 78

Using Strategic Group Maps to Assess the Market
Positions of Key Competitors 78
The Value of Strategic Group Maps 79

COMPETITOR ANALYSIS AND THE SOAR FRAMEWORK 81
Current Strategy
82
Objectives 82
Resources and Capabilities
Assumptions 83

82

KEY SUCCESS FACTORS 83
THE INDUSTRY OUTLOOK FOR PROFITABILITY 84

ILLUSTRATION CAPSULES
3.1 The Differential Effects of the Coronavirus Pandemic of 2020

56

3.2 Comparative Market Positions of Selected Companies in the Pizza
Chain Industry: A Strategic Group Map Example 80
3.3 Business Ethics and Competitive Intelligence

84

4 Evaluating a Company’s Resources,
Capabilities, and Competitiveness

90

QUESTION 1: HOW WELL IS THE COMPANY’S
PRESENT STRATEGY WORKING? 92
QUESTION 2: WHAT ARE THE COMPANY’S STRENGTHS
AND WEAKNESSES IN RELATION TO THE MARKET
OPPORTUNITIES AND EXTERNAL THREATS? 95
Identifying a Company’s Internal Strengths 96
Identifying Company Internal Weaknesses 97
Identifying a Company’s Market Opportunities 97
Identifying External Threats 97
What Do the SWOT Listings Reveal? 99

QUESTION 3: WHAT ARE THE COMPANY’S MOST IMPORTANT
RESOURCES AND CAPABILITIES, AND WILL THEY GIVE THE
COMPANY A LASTING COMPETITIVE ADVANTAGE? 100
Identifying the Company’s Resources and Capabilities
Types of Company Resources 101
Identifying Organizational Capabilities

100

102

Assessing the Competitive Power of a Company’s
Resources and Capabilities 103
The Four Tests of a Resource’s Competitive Power 103
A Company’s Resources and Capabilities Must Be Managed Dynamically
The Role of Dynamic Capabilities 105

105

QUESTION 4: HOW DO VALUE CHAIN ACTIVITIES IMPACT A COMPANY’S
COST STRUCTURE AND CUSTOMER VALUE PROPOSITION? 106

xxxvii

xxxviii

CONTENTS

The Concept of a Company Value Chain

106

Comparing the Value Chains of Rival Companies 108
A Company’s Primary and Secondary Activities Identify the Major Components
of Its Internal Cost Structure 108

The Value Chain System 109
Benchmarking: A Tool for Assessing the Costs and
Effectiveness of Value Chain Activities 111
Strategic Options for Remedying a Cost or Value Disadvantage

113

Improving Internally Performed Value Chain Activities 113
Improving Supplier-Related Value Chain Activities 114
Improving Value Chain Activities of Distribution Partners 114

Translating Proficient Performance of Value Chain
Activities into Competitive Advantage 115
How Value Chain Activities Relate to Resources and Capabilities

115

QUESTION 5: IS THE COMPANY COMPETITIVELY
STRONGER OR WEAKER THAN KEY RIVALS? 116

Strategic Implications of Competitive Strength Assessments

118

QUESTION 6: WHAT STRATEGIC ISSUES AND PROBLEMS
MERIT FRONT-BURNER MANAGERIAL ATTENTION? 119

ILLUSTRATION CAPSULES
4.1 The Value Chain for Everlane, Inc.

109

4.2 Benchmarking in the Solar Industry

112

4.3 Benchmarking and Ethical Conduct

113

Section C: Crafting a Strategy

5 The Five Generic Competitive Strategies 126
TYPES OF GENERIC COMPETITIVE STRATEGIES 128
BROAD LOW-COST STRATEGIES 129

The Two Major Avenues for Achieving a Cost Advantage
Cost-Efficient Management of Value Chain Activities 129
Revamping of the Value Chain System to Lower Costs 132
Examples of Companies That Revamped Their Value Chains to Reduce Costs

129
132

The Keys to a Successful Broad Low-Cost Strategy 134
When a Low-Cost Strategy Works Best 134
Pitfalls to Avoid in Pursuing a Low-Cost Strategy 135

BROAD DIFFERENTIATION STRATEGIES 136

Managing the Value Chain in Ways that Enhance Differentiation
Revamping the Value Chain System to Increase Differentiation

Delivering Superior Value via a Broad Differentiation Strategy
When a Differentiation Strategy Works Best 140
Pitfalls to Avoid in Pursuing a Differentiation Strategy 141

FOCUSED (OR MARKET NICHE) STRATEGIES 142
A Focused Low-Cost Strategy 142
A Focused Differentiation Strategy 144
When a Focused Low-Cost or Focused
Differentiation Strategy Is Attractive 144

136

138

139

CONTENTS

The Risks of a Focused Low-Cost or Focused
Differentiation Strategy 146

BEST-COST (HYBRID) STRATEGIES 146

When a Best-Cost Strategy Works Best
The Risk of a Best-Cost Strategy 149

147

THE CONTRASTING FEATURES OF THE GENERIC
COMPETITIVE STRATEGIES 149

Successful Generic Strategies Are Resource-Based
Generic Strategies and the Three Different
Approaches to Competitive Advantage 151

149

ILLUSTRATION CAPSULES
5.1 Vanguard’s Path to Becoming the Low-Cost Leader in Investment Management
5.2 Clinícas del Azúcar’s Focused Low-Cost Strategy

143

5.3 Canada Goose’s Focused Differentiation Strategy

145

5.4 Trader Joe’s Focused Best-Cost Strategy

133

148

6 Strengthening a Company’s Competitive Position 156
LAUNCHING STRATEGIC OFFENSIVES TO IMPROVE
A COMPANY’S MARKET POSITION 158

Choosing the Basis for Competitive Attack 158
Choosing Which Rivals to Attack 160
Blue-Ocean Strategy—a Special Kind of Offensive

160

DEFENSIVE STRATEGIES—PROTECTING MARKET
POSITION AND COMPETITIVE ADVANTAGE 161

Blocking the Avenues Open to Challengers 162
Signaling Challengers That Retaliation Is Likely 163

TIMING A COMPANY’S STRATEGIC MOVES 163

The Potential for First-Mover Advantages 163
The Potential for Late-Mover Advantages or
First-Mover Disadvantages 166
To Be a First Mover or Not 166

STRENGTHENING A COMPANY’S MARKET POSITION
VIA ITS SCOPE OF OPERATIONS 167
HORIZONTAL MERGER AND ACQUISITION STRATEGIES 168
Why Mergers and Acquisitions Sometimes Fail
to Produce Anticipated Results 169

VERTICAL INTEGRATION STRATEGIES 171

The Advantages of a Vertical Integration Strategy
Integrating Backward to Achieve Greater Competitiveness
Integrating Forward to Enhance Competitiveness 172

171

171

The Disadvantages of a Vertical Integration Strategy 173
Weighing the Pros and Cons of Vertical Integration 174

OUTSOURCING STRATEGIES: NARROWING
THE SCOPE OF OPERATIONS 176

The Risk of Outsourcing Value Chain Activities

177

xxxix

xl

CONTENTS

STRATEGIC ALLIANCES AND PARTNERSHIPS 177
Capturing the Benefits of Strategic Alliances
The Drawbacks of Strategic Alliances and
Their Relative Advantages 180
How to Make Strategic Alliances Work 181

179

ILLUSTRATION CAPSULES
6.1 Etsy’s Blue Ocean Strategy in Online Retailing of Handmade Crafts
6.2 Tinder Swipes Right for First-Mover Success

165

6.3 Walmart’s Expansion into E-Commerce via Horizontal Acquisition
6.4 Tesla’s Vertical Integration Strategy

162
170

175

7 Strategies for Competing in
International Markets

186

WHY COMPANIES DECIDE TO ENTER FOREIGN MARKETS 188
WHY COMPETING ACROSS NATIONAL BORDERS MAKES
STRATEGY MAKING MORE COMPLEX 189

Home-Country Industry Advantages and the Diamond Model

189

Demand Conditions 189
Factor Conditions 190
Related and Supporting Industries 191
Firm Strategy, Structure, and Rivalry 191

Opportunities for Location-Based Advantages 191
The Impact of Government Policies and Economic
Conditions in Host Countries 192
The Risks of Adverse Exchange Rate Shifts 193
Cross-Country Differences in Demographic,
Cultural, and Market Conditions 195

STRATEGIC OPTIONS FOR ENTERING INTERNATIONAL MARKETS 196
Export Strategies 196
Licensing Strategies 197
Franchising Strategies 197
Foreign Subsidiary Strategies 198
Alliance and Joint Venture Strategies

199

The Risks of Strategic Alliances with Foreign Partners

200

INTERNATIONAL STRATEGY: THE THREE MAIN APPROACHES 201

Multidomestic Strategies—a “Think-Local, Act-Local” Approach 202
Global Strategies—a “Think-Global, Act-Global” Approach 203
Transnational Strategies—a “Think-Global, Act-Local” Approach 204

INTERNATIONAL OPERATIONS AND THE QUEST
FOR COMPETITIVE ADVANTAGE 206

Using Location to Build Competitive Advantage

207

When to Concentrate Activities in a Few Locations 207
When to Disperse Activities across Many Locations 208

Sharing and Transferring Resources and Capabilities across
Borders to Build Competitive Advantage 208
Benefiting from Cross-Border Coordination 210

CONTENTS

CROSS-BORDER STRATEGIC MOVES 210

Waging a Strategic Offensive 210
Defending against International Rivals

211

STRATEGIES FOR COMPETING IN THE MARKETS
OF DEVELOPING COUNTRIES 212

Strategy Options for Competing in Developing-Country Markets

212

DEFENDING AGAINST GLOBAL GIANTS: STRATEGIES FOR
LOCAL COMPANIES IN DEVELOPING COUNTRIES 214

ILLUSTRATION CAPSULES
7.1 Walgreens Boots Alliance, Inc.: Entering Foreign Markets
via Alliance Followed by Merger 200
7.2 Four Seasons Hotels: Local Character, Global Service

206

7.3 WeChat’s Strategy for Defending against International
Social Media Giants in China 216

8 Corporate Strategy 222
WHAT DOES CRAFTING A DIVERSIFICATION STRATEGY ENTAIL? 224
WHEN TO CONSIDER DIVERSIFYING 224
BUILDING SHAREHOLDER VALUE: THE ULTIMATE
JUSTIFICATION FOR DIVERSIFYING 225
APPROACHES TO DIVERSIFYING THE BUSINESS LINEUP 226
Diversifying by Acquisition of an Existing Business 226
Entering a New Line of Business through Internal Development
Using Joint Ventures to Achieve Diversification 227
Choosing a Mode of Entry 228
The Question of Critical Resources and Capabilities
The Question of Entry Barriers 228
The Question of Speed 228
The Question of Comparative Cost 229

227

228

CHOOSING THE DIVERSIFICATION PATH: RELATED
VERSUS UNRELATED BUSINESSES 229
DIVERSIFICATION INTO RELATED BUSINESSES 229

Identifying Cross-Business Strategic Fit along the Value Chain

232

Strategic Fit in Supply Chain Activities 234
Strategic Fit in R&D and Technology Activities 234
Manufacturing-Related Strategic Fit 234
Strategic Fit in Sales and Marketing Activities 234
Distribution-Related Strategic Fit 235
Strategic Fit in Customer Service Activities 235

Strategic Fit, Economies of Scope, and Competitive Advantage

235

From Strategic Fit to Competitive Advantage, Added Profitability, and Gains in Shareholder
Value 236

DIVERSIFICATION INTO UNRELATED BUSINESSES 238

Building Shareholder Value via Unrelated Diversification
The Benefits of Astute Corporate Parenting 240
Judicious Cross-Business Allocation of Financial Resources 241
Acquiring and Restructuring Undervalued Companies 241

238

xli

xlii

CONTENTS

The Path to Greater Shareholder Value through
Unrelated Diversification 242
The Drawbacks of Unrelated Diversification 242
Demanding Managerial Requirements 242
Limited Competitive Advantage Potential 243

Misguided Reasons for Pursuing Unrelated Diversification

243

COMBINATION RELATED–UNRELATED DIVERSIFICATION STRATEGIES 244
EVALUATING THE STRATEGY OF A DIVERSIFIED COMPANY 244
Step 1: Evaluating Industry Attractiveness

245

Calculating Industry-Attractiveness Scores 246
Interpreting the Industry-Attractiveness Scores 247

Step 2: Evaluating Business Unit Competitive Strength

248

Calculating Competitive-Strength Scores for Each Business Unit 248
Interpreting the Competitive-Strength Scores 249
Using a Nine-Cell Matrix to Simultaneously Portray Industry Attractiveness and Competitive
Strength 249

Step 3: Determining the Competitive Value of
Strategic Fit in Diversified Companies 252
Step 4: Checking for Good Resource Fit 252
Financial Resource Fit 253
Nonfinancial Resource Fit 255

Step 5: Ranking Business Units and Assigning a
Priority for Resource Allocation 256
Allocating Financial Resources

256

Step 6: Crafting New Strategic Moves to Improve
Overall Corporate Performance 257
Sticking Closely with the Present Business Lineup 257
Broadening a Diversified Company’s Business Base 257
Retrenching to a Narrower Diversification Base 259
Restructuring a Diversified Company’s Business Lineup 260

ILLUSTRATION CAPSULES
8.1 Examples of Companies Pursuing a Related Diversification Strategy

233

8.2 The Kraft–Heinz Merger: Pursuing the Benefits of
Cross-Business Strategic Fit 237
8.3 Examples of Companies Pursuing an Unrelated Diversification Strategy
8.4 Restructuring Strategically at VF Corporation

239

261

9 Ethics, Corporate Social Responsibility,

Environmental Sustainability, and Strategy

266

WHAT DO WE MEAN BY BUSINESS ETHICS? 268
WHERE DO ETHICAL STANDARDS COME
FROM—ARE THEY UNIVERSAL OR DEPENDENT ON LOCAL NORMS? 268
The School of Ethical Universalism 268
The School of Ethical Relativism 269

The Use of Underage Labor 269
The Payment of Bribes and Kickbacks 270
Why Ethical Relativism Is Problematic for Multinational Companies

Ethics and Integrative Social Contracts Theory

271

271

CONTENTS

HOW AND WHY ETHICAL STANDARDS IMPACT THE TASKS
OF CRAFTING AND EXECUTING STRATEGY 272
DRIVERS OF UNETHICAL BUSINESS STRATEGIES AND BEHAVIOR 273
Faulty Oversight, Enabling the Unscrupulous Pursuit of Personal Gain
and Self-Interest 273
Heavy Pressures on Company Managers to Meet Short-Term Performance Targets
A Company Culture That Puts Profitability and Business Performance
Ahead of Ethical Behavior 276

275

WHY SHOULD COMPANY STRATEGIES BE ETHICAL? 277
The Moral Case for an Ethical Strategy 277
The Business Case for Ethical Strategies 277

STRATEGY, CORPORATE SOCIAL RESPONSIBILITY,
AND ENVIRONMENTAL SUSTAINABILITY 279

The Concepts of Corporate Social Responsibility
and Good Corporate Citizenship 280
Corporate Social Responsibility and the Triple Bottom Line

282

What Do We Mean by Sustainability and
Sustainable Business Practices? 285
Crafting Corporate Social Responsibility and
Sustainability Strategies 287
The Moral Case for Corporate Social Responsibility and
Environmentally Sustainable Business Practices 289
The Business Case for Corporate Social Responsibility and
Environmentally Sustainable Business Practices 289

ILLUSTRATION CAPSULES
9.1 Ethical Violations at Uber and their Consequences
9.2 How PepsiCo Put Its Ethical Principles into Practice

274
279

9.3 Warby Parker: Combining Corporate Social Responsibility
with Affordable Fashion 283
9.4 Unilever’s Focus on Sustainability

288

Section D: Executing the Strategy

10 Building an Organization Capable of
Good Strategy Execution

296

A FRAMEWORK FOR EXECUTING STRATEGY 298

The Principal Components of the Strategy Execution Process
What’s Covered in Chapters 10, 11, and 12

299

BUILDING AN ORGANIZATION CAPABLE OF GOOD
STRATEGY EXECUTION: THREE KEY ACTIONS 300
STAFFING THE ORGANIZATION 302

Putting Together a Strong Management Team 302
Recruiting, Training, and Retaining Capable Employees

DEVELOPING AND BUILDING CRITICAL RESOURCES
AND ORGANIZATIONAL CAPABILITIES 305