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PA C I F I C E D I T I O N

STUDY HACK #17 Use Google Docs to take notes in

class, then transform these notes into exam revision.

Sam, student, Adelaide

This book has all the tools for you to ace this subject. What’s stopping you?

BE AMBITIOUS

Gain a real understanding

of the strategic management process and

how it is used in the global

economy

Local and international case studies demonstrate

theory put into practice in

real-life business situations

Support your learning with experiential

exercises that give you the opportunity to put your knowledge

into practice

Hanson_7e_sb_51116_CVR.indd All Pages 4/6/21 11:46 am

Strategic Management: Competitiveness and Globalisation

7th Edition

Dallas Hanson

Kim Backhouse

David Leaney

Michael A. Hitt

R. Duane Ireland

Robert E. Hoskisson

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Adaptation of Strategic Management: Competitiveness and Globalization,

13th edition by Michael A. Hitt, R. Duane Irelane and Robert F. Hoskisson

[9780357033838], Cengage Learning, 2015.

This seventh edition published in 2022.

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1 2 3 4 5 6 7 25 24 23 22 21

B R I E F C O N T E N T S

1 PART 1 STRATEGIC MANAGEMENT INPUTS 1 1 Strategic management and strategic

competitiveness 2

2 The external environment: opportunities, threats, industry competition and competitor analysis 34

3 The internal organisation: resources, capabilities, core competencies and competitive advantages 72

2 PART 2 STRATEGIC ACTIONS: STRATEGY FORMULATION 101 4 Business-level strategy 102

5 Competitive dynamics 131

6 Corporate-level strategy 161

7 Acquisition and restructuring strategies 189

8 International strategy 218

9 Cooperative strategy 252

3 PART 3 STRATEGIC ACTIONS: STRATEGY IMPLEMENTATION 283

10 Corporate governance 284

11 Organisational structure and controls 321

12 Strategic leadership 355

13 Strategic entrepreneurship 386

4 PART 4 CASE STUDIES 411 Introduction: A summary of the case analysis process 412

Case 1: JB Hi-Fi Ltd acquisition of The Good Guys 415

Case 2: Challenges at Australia Post 426

Case 3: Nyrstar NV: a case study in a failed vertical integration strategy 432

Case 4: Pfizer 442

Case 5: Atlassian 454

Case 6: The Sunshine Coast UNESCO Biosphere Reserve and Smart City: a new governance opportunity in a post-pandemic world? 458

Case 7: CrossFit at the crossroads 465

Case 8: The movie exhibition industry: 2018 and beyond 482

Case 9: Pacific Drilling: the preferred offshore driller 506

Case 10: The trivago way - growing without growing up? 522

Case 11: The Volkswagen emissions scandal 539

Case 12: Otis in the global elevator industry 549

Case 13: Dick Smith: the fall of an Aussie icon 555

GLOSSARY 566 NAME INDEX 572 SUBJECT INDEX 580

C O N T E N T S GUIDE TO THE TEXT XII GUIDE TO THE ONLINE RESOURCES XIV PREFACE XVI ABOUT THE AUTHORS XVIII ACKNOWLEDGEMENTS XXI

1 PART 1 STRATEGIC MANAGEMENT INPUTS 1 1 Strategic management and strategic

competitiveness 2

Opening case study: McDonald’s and brand recognition 3

The strategic management process 4

The competitive landscape 7 The global economy 8

Strategic focus: Starbucks is a new economy multinational yet has had failures in key markets 9 The march of globalisation 10 Technology and technological changes 11

Strategic focus: The core of Apple: technology and innovation 14

The I/O model of above-average returns 15

The resource-based model of above-average returns 17

Vision and mission 19 Vision 19 Mission 20

Stakeholders 21 Classifications of stakeholders 21

Strategic leaders 23 The work of effective strategic leaders 24 Predicting outcomes of strategic decisions 25 Ethical dimensions 25

STUDY TOOLS 27

2 The external environment: opportunities, threats, industry competition and competitor analysis 34

Opening case study: Drilling for oil: risks and rewards 35

The general, industry and competitor environments 38

External environmental analysis 39 Scanning 40 Monitoring 40 Forecasting 41 Assessing 41

Segments of the general environment 41 The demographic segment 42 The economic segment 44 The political/legal segment 46 The sociocultural segment 47 The technological segment 49 The global segment 50 The physical environment segment 51

Strategic focus: Target (Tar-zhey) is trying to navigate in a new and rapidly changing competitive landscape 52

Industry environment analysis 53 Threat of new entrants 54 Bargaining power of suppliers 57 Bargaining power of buyers 57 Threat of substitute products 58

Strategic focus: German performance/luxury cars: if you’ve seen one, have you seen them all? 58 Intensity of rivalry among competitors 59 Interpreting industry analyses 61

Strategic groups 61

Competitor analysis 62 Ethical considerations 64

STUDY TOOLS 65

3 The internal organisation: resources, capabilities, core competencies and competitive advantages 72

Opening case study: Large pharmaceutical companies, big data analytics, artificial intelligence and core competencies: a brave new world 73

Analysing the internal organisation 75 The context of internal analysis 75 Creating value 76 The challenge of analysing the internal organisation 77

Resources, capabilities and core competencies 79 Strategic focus: Tangible and intangible resources as the base for core competencies 80 Resources 80 Capabilities 83 Core competencies 83

Building core competencies 84 Strategic focus: Procter & Gamble: using capabilities and core competencies to create value for customers 85 The four criteria of sustainable competitive advantage 86 Value chain analysis 89

Competencies, strengths, weaknesses and strategic decisions 92

STUDY TOOLS 94

2 PART 2 STRATEGIC ACTIONS: STRATEGY FORMULATION 101 4 Business-level strategy 102

Opening case study: Clonakilla Wines in a quality niche position 103

Customers: their relationship with business- level strategies 105 Effectively managing relationships with customers 105 Reach, richness and affiliation 106 Who: determining the customers to serve 107 What: determining which customer needs to satisfy 107

How: determining core competencies necessary to satisfy customer needs 108

The purpose of a business-level strategy 109

Business models and their relationship with business-level strategies 109

Types of business-level strategies 110 Cost leadership strategy 112 Differentiation strategy 115 Focus strategies 119 Integrated cost leadership/differentiation strategy 120

Strategic focus: Apple vs Samsung vs Huawei: the battle for smart technology 121

STUDY TOOLS 125

5 Competitive dynamics 131

Opening case study: Tesco PLC: a case study in competitive behaviour 132

A model of competitive rivalry 134

Competitor analysis 135 Market commonality 136

Strategic focus: Competitive rivalry in fast fashion: a constant stream of actions and responses 137 Resource similarity 138

Drivers of competitive actions and responses 139

Competitive rivalry 141 Strategic and tactical actions 141

Likelihood of attack 142 First-mover incentives 142 Organisational size 144 Quality 144

Likelihood of response 145 Type of competitive action 146 Actor’s reputation 146 Dependence on the market 147

Competitive dynamics 147 Slow-cycle markets 147 Fast-cycle markets 148

viiCONTENTS

Strategic focus: The emergence of competitive rivalry among battery manufacturers: who will establish the most attractive market position? 150 Standard-cycle markets 152

STUDY TOOLS 153

6 Corporate-level strategy 161

Opening case study: The quintessential diversified organisation 162

Purpose of corporate-level strategies 163

Levels of diversification 164 Low levels of diversification 165 Moderate and high levels of diversification 166

Strategic focus: Acciona’s related diversification and renewable energy growth 166

Reasons for diversification 167

Value-creating diversification: related constrained and related linked diversification 169 Operational relatedness: sharing activities 170 Corporate relatedness: transferring of core competencies 170 Market power 171

Strategic focus: Alphabet’s evolution through diversification 172 Simultaneous operational relatedness and corporate relatedness 174

Unrelated diversification 174 Efficient internal capital market allocation 174 Restructuring of assets 176

Value-neutral diversification: incentives and resources 176 Incentives to diversify 177 Resources and diversification 178

Value-reducing diversification: managerial motives to diversify 179

STUDY TOOLS 182

7 Acquisition and restructuring strategies 189

Opening case study: Strategic acquisitions and a people- focused integration of those acquisitions are vital capabilities of Atlassian 190

The popularity of merger and acquisition strategies 192 Mergers, acquisitions and takeovers: what are the differences? 192

Reasons for acquisitions 193 Increased market power 193 Overcoming entry barriers 195

Strategic focus: Cross-border acquisitions by organisations from emerging economies: leveraging resources to gain a larger global footprint and market power 196 Cost of new product development and increased speed to market 198 Lower risk compared to developing new products 199 Increased diversification 199 Reshaping the organisation’s competitive scope 200 Learning and developing new capabilities 200

Problems in achieving acquisition success 201 Integration difficulties 201 Inadequate evaluation of target 202 Large or extraordinary debt 203 Inability to achieve synergy or harvest benefits 203 Too much diversification 204 Managers overly focused on acquisitions 205 Too large 205

Effective acquisitions 206

Restructuring 208 Downsizing 208 Downscoping 209 Leveraged buyouts 209 Restructuring outcomes 209

STUDY TOOLS 211

viii CONTENTS

8 International strategy 218

Opening case study: An international strategy powers ABB’s future 219

Identifying international opportunities 221 Incentives to use international strategy 221 Three basic benefits of international strategy 222

International strategy types 224 International business-level strategy 225 International corporate-level strategy 227

Environmental trends 230 Liability of foreignness 230 Regionalisation 231

Choice of international entry mode 232 Exporting 232 Licensing 233 Strategic alliances 234 Acquisitions 235 New wholly owned subsidiaries 236 Dynamics of mode of entry 236

Strategic focus: Mondelez International: a global leader in snack foods 237

Risks in an international environment 238 Political risks 238 Economic risks 239

The challenge of international strategies 240 Managing international strategies: size and complexity 240 Limits to international expansion 241

Strategic focus: Mexico’s FEMSA: building its international prowess 241

Strategic competitiveness outcomes 242 International diversification and returns 242 Enhanced innovation 243

STUDY TOOLS 244

9 Cooperative strategy 252

Opening case study: Global cars, with a twist 253

Strategic alliances as a primary type of cooperative strategy 254

Types of major strategic alliances 255

Strategic focus: Samsung Electric is using diversifying alliances to reduce its dependence on Google’s Android operating system 256 Reasons organisations develop strategic alliances 258

Strategic focus: Industrial clusters: geographic centres for collaborative partnering 260

Competition-reducing strategy 263

Business-level cooperative strategy 263 Complementary strategic alliances 264 Competition response strategy 266 Uncertainty-reducing strategy 266 Assessing business-level cooperative strategies 266

Corporate-level cooperative strategy 267 Diversifying strategic alliance 267 Synergistic strategic alliance 268 Franchising 268 Assessing corporate-level cooperative strategies 269

International cooperative strategy 269

Network cooperative strategy 270 Alliance network types 271

Competitive risks with cooperative strategies 272

Managing cooperative strategies 273

STUDY TOOLS 275

3 PART 3 STRATEGIC ACTIONS: STRATEGY IMPLEMENTATION 283

10 Corporate governance 284

Opening case study: General Electric’s complex diversification strategy makes evaluation difficult for board directors 285

Separation of ownership and managerial control 288 Agency relationships 288 Product diversification as an example of an agency problem 290 Agency costs and governance mechanisms 291

ixCONTENTS

Ownership concentration 292 Ownership structures of companies in Australia 293 The increasing influence of institutional owners 293

Board of directors 293 Board of directors process 296 Enhancing the effectiveness of the board of directors 297 Executive compensation 298 The effectiveness of executive compensation 299

Strategic focus: Has more governance scrutiny made large CEO compensation packages more reasonable? 300

Market for corporate control 301

International corporate governance 302 Corporate governance in Australia 302 Corporate governance in Germany and Japan 306 Corporate governance in China 307 Corporate governance in Spain 308

Governance mechanisms and ethical behaviour 308 Strategic focus: Rewarding top executives of one of the most poorly governed banks in the world: Westpac 309 Corporate governance and organisation performance 311 Corporate social responsibility 311

STUDY TOOLS 313

11 Organisational structure and controls 321

Opening case study: Changing McDonald’s organisational structure and controls: a path to improved performance 322

Organisational structure and controls 323 Organisational structure 324 Organisational controls 325

Relationships between strategy and structure 326

Evolutionary patterns of strategy and organisational structure 327 Simple structure 328 Functional structure 328 Multi-divisional structure 328 Matches between business-level strategies and the functional structure 329

Matches between corporate-level strategies and the multi-divisional structure 332

Strategic focus: Globalisation and beer 333

Strategic focus: General Electric’s decline, new strategy and reorganisation 339 Matches between international strategies and worldwide structure 340 Matches between cooperative strategies and network structures 344

Implementing business-level cooperative strategies 345

Implementing corporate-level cooperative strategies 346

Implementing international cooperative strategies 347

STUDY TOOLS 348

12 Strategic leadership 355

Opening case study: Meg Whitman: a pioneering strategic leader 356

Strategic leadership and style 358

The role of executive managers 360 Executive management teams 361

Managerial succession 363 Strategic focus: Women in leadership 365

Key strategic leadership actions 366 Determining strategic direction 366 Effectively managing the organisation’s resource portfolio 368 Sustaining an effective organisational culture 370

Strategic focus: Organisational culture: is it really that important? 372 Emphasising ethical practices 373 Leadership and corporate social responsibility 374 Establishing balanced organisational controls 375

STUDY TOOLS 378

x CONTENTS

13 Strategic entrepreneurship 386

Opening case study: Today it is gas and diesel: tomorrow it is likely to be electric vehicles, plug-in hybrids, and driverless cars and trucks 387

Entrepreneurship and entrepreneurial opportunities 389

Innovation 389 Product innovation 391

Entrepreneurs 391

International entrepreneurship 392

Internal innovation 393 Incremental and radical innovation 393

Implementing internal innovations 394 Cross-functional product development teams 395 Facilitating integration and innovation 396 Creating value from internal innovation 396

Innovation through cooperative strategies 397 Strategic focus: Social networking websites facilitate innovation: application software innovation 398

Innovation through acquisitions 399 Strategic focus: Will these acquisitions lead to innovation success or to strategic failure? 400

Creating value through strategic entrepreneurship 401

STUDY TOOLS 403

4 PART 4 CASE STUDIES 411 Introduction: A summary of the case analysis process 412

Case 1: JB Hi-Fi Ltd acquisition of The Good Guys 415

Case 2: Challenges at Australia Post 426

Case 3: Nyrstar NV: a case study in a failed vertical integration strategy 432

Case 4: Pfizer 442

Case 5: Atlassian 454

Case 6: The Sunshine Coast UNESCO Biosphere Reserve and Smart City: a new governance opportunity in a post-pandemic world? 458

Case 7: CrossFit at the crossroads 465

Case 8: The movie exhibition industry: 2018 and beyond 482

Case 9: Pacific Drilling: the preferred offshore driller 506

Case 10: The trivago way - growing without growing up? 522

Case 11: The Volkswagen emissions scandal 539

Case 12: Otis in the global elevator industry 549

Case 13: Dick Smith: the fall of an Aussie icon 555

GLOSSARY 566 NAME INDEX 572 SUBJECT INDEX 580

xiCONTENTS

xii

Strategic management and strategic competitiveness

CH AP

TE R

1 Studying this chapter should provide you with the strategic management knowledge needed to: LO1 analyse the components of the strategic management process LO2 describe the competitive landscape and explain how globalisation and

technological changes shape it LO3 use the industrial organisation (I/O) model to explain how companies can earn

above-average returns LO4 use the resource-based model to explain how companies can earn above-

average returns LO5 describe vision and mission and discuss their value LO6 define and classify the four major stakeholder groups and describe their ability

to influence organisations LO7 describe the work of strategic leaders.

Learning Objectives

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McDonald’s in Australia is part of a global empire of fast- food restaurants. McDonald’s has achieved substantial international success over the years, with its restaurants spread widely throughout the world. Brand recognition is huge: many people know about, and are customers of, McDonald’s. For example, a recent survey found that 88 per cent of people recognise the golden arches and associate them with McDonald’s. Each day, about 69 million people eat at a McDonald’s store, which equates

to almost 0.8 per cent of the world’s population. In 2018, McDonald’s had 37 855 total restaurants globally located in 120 different countries and 14 155 stores in the US alone. China has 2223 stores compared with Japan 2975, the UK 1261, Canada 1443 and Australia 920. Globally, McDonald’s hires 1.9 million employees, and it hires approximately one million employees per year in the USA. In 2018, its annual revenue was $21 billion and its net income was $5.9 billion.

McDonald’s: Restaurant expansion since 1955.

Source: https://mcdonalds.com.au/about-maccas/maccas-story.

Given that McDonald’s includes a toy in about 20 per cent of its sales, it is considered the world’s largest distributor of toys. Each year, McDonald’s distributes 1.5 billion toys globally, which is more than Mattel and Hasbro. McDonald’s decided early to move into international markets, and now one can find the golden arches in far-flung locations around the globe.

In Australia, ‘Maccas’ (the locals’ name for the organisation) is thriving, with flexible offerings, ‘gourmet coffee’ and fresh-food bars. These have been successful moves. The UK arm has also been responsive to consumer demand; for example, it accommodates consumers who ask what goes into their food, providing information to staff that allows them to respond, and it promotes jobs in the chain as upwardly mobile.

China is a promising arena but there are continuing pressures there, with high levels of rivalry from KFC. There are now over 2000 McDonald’s outlets in China, which is approximately one-third the number of KFC outlets. KFC has around 5919 stores and is presently considered the most popular fast-food chain in China.

In India, where historically the brand was relatively small with only 400 stores compared with China, Japan and Australia, McDonald’s turned a corner when it announced in May 2019 that it had finally acquired full ownership of Connaught Plaza Restaurants. This entity had run the global giant’s operations in north and east India – from its long-estranged business partner Vikram Bakshi. The association between Bakshi and McDonald’s commenced in 1995 when, under a 25-year deal, the

McDonald’s and brand recognition

OPENING CASE STUDY

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CHAPTER 1 STRATEGIC MANAGEMENT AND STRATEGIC COMPETITIVENESS

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Definitions or explanations of important key terms are located in the margin for quick reference.

Guide to the text As you read this text you will find a number of features in every

chapter to enhance your study of strategic management and help you understand how the theory is applied in the real world.

CHAPTER-OPENING FEATURES

Knowledge objectives Identify the key concepts that the chapter will cover with the learning objectives that start each chapter.

Opening Case study Gain an insight into how strategic management theories relate to the real world through the case study at the beginning of each chapter.

2 1

FEATURES WITHIN CHAPTERS

As we can see from t he open ing case, McDonald’s organ isations in Aust ralia, t he U K, Ch ina, Ind ia, Japan and t he USA a re all in d i fferent compet it ive posit ions. Therefore, we can conclude that they are not equally competitive (i.e. they are unable to achieve similar strategic competitiveness). In the USA, the organisation is now using the strategic management process (see Figure 1.1) as the foundation for changes to the commitments, decisions and actions it undertook to pursue strategic competitiveness and above-average terms. It may well succeed, given time.1

The strategic management process As explained in the opening case, McDonald’s is trying to enrich its traditional approach globally with more marketing and by making its stores more responsive to local consumers’ needs. A study conducted to identify the factors that contribute to the success of top corporate performers shows why the organisation is doing this. This study found that the top performers were entrepreneurial, were market oriented (possessing effective knowledge of the customers’ needs), used valuable competencies and offered innovative products and services.2

The t y pes of behav iou rs ex h ibited by top per for mers l i ke McDona ld’s represent a strategic management process (see Fig u re 1.1), wh ich is a f u l l set of com m it ments, decisions and actions required for an organisation to achieve strategic competitiveness and earn above-average returns. The organisation’s first step in the process is to analyse its external environment and internal organisation to determine its resources, capabilities and core competencies – the sources of its ‘strategic inputs’. We will now analyse each of the different components of the strategic management process.

Strategic competitiveness is achieved when an organisation successfully formulates and implements a value-creating strategy. A strategy is an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive adva ntage. W hen choosi ng a st rateg y, orga n isat ions ma ke choices a mong compet i ng alternatives as the pathway for deciding how they will pursue strategic competitiveness. 3

In this sense, the chosen strateg y indicates what the organisation will do as well as what the organisation will not do. A n organisation’s strateg y also demonstrates how it differs from its competitors.

strategic management process the full set of commitments, decisions and actions required for an organisation to achieve strategic competitiveness and earn above-average returns

strategic competitiveness achieved when an organisation successfully formulates and implements a value-creating strategy

strategy an integrated and coordinated set of commitments and actions designed to exploit core competencies and gain a competitive advantage

two partners formed a 50:50 joint venture company – Connaught Plaza Restaurant – to set up outlets in the north and the east under the franchisee model. To date, McDonald’s has two business entities in India. Amit Jatia’s Hardcastle Restaurants runs the McDonald’s business in southern and western India. McDonald’s India is committed to sourcing almost all of its products from within the country. For this purpose, it has developed local Indian businesses, which can supply the highest- quality products required for its Indian operations.

The McDonald’s empire is obviously difficult to control and constantly presents country-specific challenges. Clever strategy is important for its continued survival and,

for the company, hopefully, its growth post the Covid-19 pandemic.

Sources: C. Smith, 2020, 50 interesting McDonald’s statistics and facts 2020, DMR Business Statistics, https://expandedramblings.com/index.php/

mcdonalds-statistics, 28 May; R. Darling, 2019, Thanks to the Happy Meal, McDonald’s is the largest toy manufacturer, http://www.considerable.com,

6 November; 2019, KFC is most popular food chain in China, http://www. businessinsider.com, 8 March; The Economic Times, 2019, Vikram Bakshi is

finally out, and McDonald’s India is lovin’ it, ET Online, https://economictimes. indiatimes.com/industry/services/hotels-/-restaurants/vikram-bakshi-is-

finally-out-and-mcdonalds-india-is-lovin-it/articleshow/69309704.cms?utm_ source=contentofinterest&utm_medium=text&utm_campaign=cppst, 14 May; T.

DiChristopher, 2015, McDonald’s new CEO faces many problems, CNBC, http:// www.cnbc.com/2015/01/29/how-mcdonalds-new-ceo-can-turn-around-the-

company.html, 29 January; FT Reporters, 2015, McDonald’s and its challenges worldwide: A market-by-market look, Financial Times, http://www.ft.com/intl/

cms/s/0/f8ac22fc-a7c1-11e4-8e78-00144feab7de.html#slide0, 29 January.

4 PART 1: STRATEGIC MANAGEMENT INPUTS

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KEY TERMS WITH MARGIN DEFINITIONS

Examine the ways in which key concepts are applied in a business context, using real situations and familiar local and international companies. The Strategic Focus boxes are categorised to emphasise the focus: general, ethics, technology, sustainability and globalisation.

STRATEGIC FOCUS BOXES

Strategy Now margin icons highlight companies that have effectively put a strategic management tool, concept or technique into practice.

STRATEGY NOW

Increasing knowledge intensity K nowledge (infor mation, intelligence and exper tise) is the basis of tech nolog y and its applicat ion. In t he compet it ive la ndscape of t he 21st centu r y, k nowledge is a cr it ical organisational resource and an increasingly valuable source of competitive advantage.75

Indeed, sta r t ing in t he 1980s, t he basis of compet it ion sh if ted from ha rd assets to intangible resources; for example, ‘Walmart transformed retailing through its proprietar y approach to supply chain management and its information rich relationships with customers and suppliers’.76 Relationships with customers and suppliers are an example of an intangible resource.

Knowledge is gained through experience, observation and inference, and is an intangible resource. The value of intangible resources, including knowledge, is growing as a proportion of tota l sha reholder va lue i n today ’s compet it ive la ndscape.77 In fact, t he Brook i ngs Institution estimates that intangible resources contribute approximately 85 per cent of that value.78 The probability of achieving strategic competitiveness is enhanced for the organisation that develops the ability to capture intelligence, transfor m it into useable k nowledge a nd d i ff use it rapid ly t h roughout t he compa ny.79 Therefore, orga n isat ions must develop (e.g. through training programs) and acquire (e.g. by hiring educated and experienced employees) knowledge, integrate it into the organisation to create capabilities, and then apply it to gain a competitive advantage.80

Apple retail stores enjoy a steady flow of traffic each day. More remarkable is that Apple’s stores in China handled in excess of 40 000 people daily prior to the Covid-19 pandemic. Apple has opened 510 retail stores across 25 countries, with 271 located in the United States alone. Apple’s newest locations include: Kawasaki and Tokyo, Japan; Mexico City; Singapore Airport; and Taipei, Taiwan.

Source: Newspix/Alan Pryke

century, based on the fact that Apple under his leadership had transformed four industries, three of them in a decade. In addition, in 2020 Fast Company named Apple in the World’s Most Innovative Companies list. Apple is one of the top companies in the world based on almost any criterion or set of criteria used. Because of this, Apple is perceived exceptionally well by customers. Apple’s growth rate has been extraordinary and its financial performance even more impressive. And the appeal of Apple’s products is global. For example, Apple’s iPhones now exceed 925 million units globally. Apple also disclosed that there were 1.4 billion active devices as of January 2019.

Although there are many reasons for its success, the primary reasons rest with Apple’s new technology development and innovative new products.

Sources: MacRumors Staff, 2020, Keep track of Apple’s retail stores worldwide, http://www.macrumors.com, 12 May; Above Avalon, 2019,

http://www.aboveavalon.com, 30 May; Fortune, 2011, World’s most admired companies, http://www.fortune.com, 3 March; B. Worthen,

2011, With new iPad, Apple tries to stay ahead of wave of tablet rivals, Wall Street Journal, http://www.online.wsj.com, 3 March; G. A. Fowler &

N. Wingfield, 2011, Apple’s showman takes the stage, Wall Street Journal, http://www.online.wsj.com, 3 March; Financial Times, 2011, Apple and

the tablets, http://www.ft.com, 1 March; N. Louth, 2011, Finding value in Apple’s core, Financial Times, http://www.ft.com, 25 February; M. Helft,

2011, After iPad’s head start, rival tablets are poised to flood offices, New York Times, http://www.nytimes.com, 20 February; L. Chao, 2011, New Shanghai Apple store will be biggest in China, Wall Street Journal,

http://www.online.wsj.com, 18 February.

STRATEGY NOW

Apple’s drive to innovate

16 PART 1: STRATEGIC MANAGEMENT INPUTS

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xiiiGUIDE TO THE TEXT

Key terms Review the important terminology from the chapter margin with the Key terms list.

At the end of each chapter you’ll find several tools to help you to review, practise and extend your knowledge of the key learning objectives.

STUDy TOOLS SUMMARY LO1 The organisation’s external environment is challenging

and complex. The external environment has three major parts: the general environment (elements in the broader society that affect industries and their organisations), the industry environment (factors that influence an organisation, its competitive actions and responses, and the industry’s profit potential) and the competitor environment (in which the organisation analyses each major competitor’s future objectives, current strategies, assumptions and capabilities).

LO2 The external environmental analysis process has four steps: scanning, monitoring, forecasting and assessing. Through environmental analyses, the organisation identifies opportunities and threats.

LO3 The general environment has seven segments: demographic, economic, political/legal, sociocultural, technological, global and physical. For each segment, the organisation has to determine the strategic relevance of environmental changes and trends.

LO4 Compared with the general environment, the industry environment has a more direct effect on the organisation’s strategic actions. The five forces

model of competition comprises the threat of entry, the power of suppliers, the power of buyers, product substitutes and the intensity of rivalry among competitors. By studying these forces, the organisation can find a position in an industry where it can influence the forces in its favour or where it can buffer itself against the power of the forces in order to achieve strategic competitiveness and earn above- average returns.

LO5 Industries are populated with different strategic groups. A strategic group is a collection of organisations following similar strategies along similar dimensions. Competitive rivalry is greater within a strategic group than between strategic groups.

LO6 Competitor analysis focuses on each company against which an organisation directly competes. Critical to an effective competitor analysis is gathering data and information that can help the organisation understand its competitors’ intentions and the strategic implications resulting from them. Organisations must follow mandatory laws and regulations as well as ethical guidelines when gathering competitor intelligence.

KEY TERMS competitor intelligence

complementors

demographic segment

economic environment

general environment

global segment

industry

industry environment

opportunity

physical environment segment

political/legal segment

sociocultural segment

strategic group

technological segment

threat

REVIEW QUESTIONS 1. Why is it important for an organisation to study and

understand the external environment?

2. What are the differences between the general environment and the industry environment? Why are these differences important?

3. What are the four steps in the external environmental analysis process? What does the organisation want to learn when using this process?

4. What are the seven segments of the general environment? Explain the differences among them. Is any segment more important than another?

5. How do the five forces of competition in an industry affect its profit potential? Explain.

6. What is the importance of collecting and interpreting data and information about competitors? What practices should an organisation use to gather competitor intelligence, and why?

CHAPTER 2 THE ExTERnAL EnvIROnmEnT: OPPORTUnITIES, THREATS, InDUSTRy COmPETITIOn AnD COmPETITOR AnALySIS

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STUDy TOOLS SUMMARY LO1 The organisation’s external environment is challenging

LO2 The external environmental analysis process has four steps: scanning, monitoring, forecasting and assessing. Through environmental analyses, the organisation identifies opportunities and threats.

LO4 Compared with the general environment, the industry environment has a more direct effect on the organisation’s strategic actions. The five forces

KEY TERMS competitor intelligence

complementors

demographic segment

economic environment

general environment

global segment

industry

industry environment

opportunity

physical environment segment

political/legal segment

sociocultural segment

strategic group

technological segment

threat

REVIEW QUESTIONS 1. Why is it important for an organisation to study and

understand the external environment?

2. What are the differences between the general environment and the industry environment? Why are these differences important?

3. What are the four steps in the external environmental analysis process? What does the organisation want to learn when using this process?

4. What are the seven segments of the general environment? Explain the differences among them. Is any segment more important than another?

5. How do the five forces of competition in an industry affect its profit potential? Explain.

6. What is the importance of collecting and interpreting data and information about competitors? What practices should an organisation use to gather competitor intelligence, and why?

CHAPTER 2 THE ExTERnAL EnvIROnmEnT: OPPORTUnITIES, THREATS, InDUSTRy COmPETITIOn AnD COmPETITOR AnALySIS

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EXPERIENTIAL EXERCISES

Exercise 1: Strategic group mapping If a given set of organisations emphasise similar strategic dimensions and use a similar strategy, these organisations can be said to reside in the same strategic group. Other common definitions of strategic groups typically argue that the organisations in a given industry follow similar strategies, such as pricing, degree of specialisation, research and development commitment and the like. It is also likely that organisations operating in a given industry may have very different profitability profiles, which raises the question: if one organisation is the most profitable, why don’t all the others in that industry attempt to move into the same strategic group as the industry leader?

Part 1 1. Form teams and pick an industry the team finds

interesting. A list of industries and industry leaders may be found at yahoo! Finance (http://biz.yahoo.com/ic/ ind_index.html).

2. Investigate this industry in order to create a strategic group map. you must pick the two dimensions for your map that best represent the key success factors in this industry (e.g. R&D investments, pricing, geographic reach).

3. For each organisation listed on your map, investigate its overall financial performance, not only historically, but also its five-year growth forecast. (This information is also available at yahoo! Finance and other locations.)

Part 2 Prepare a presentation to the class that discusses your findings and answers the following key issues or questions: 1. Who are the most direct competitors and on what basis

do they mostly compete? That is, why did you choose the competitive dimensions that you did?

2. How does profitability stack up between strategic groups? Which groups are most profitable, and why?

3. What would it take for an organisation to move from an underperforming (in terms of profitability) strategic group to a more profitable strategic group? How likely is it that this could happen?

4. Think about one of the organisations in a particular strategic group. Are there any opportunities for this organisation that you see because of your strategic group mapping?

5. What conclusions can you reach about why some organisations end up where they do among various strategic groups?

Exercise 2: What does the future look like? A critical ingredient in studying the general environment is identifying opportunities and threats. An opportunity is a condition in the environment that, if exploited, helps a company to achieve strategic competitiveness. In order to identify opportunities, you must be aware of trends that affect the world around us now or that are projected to do so in the future.

Thomas Fry, senior futurist at the Davinci Institute, believes that the chaotic nature of interconnecting trends and the vast array of possibilities that arise from them are somewhat akin to watching a spinning compass needle. From the way we use phones and email and recruit new workers to organisations, the climate for business is changing and shifting dramatically, and at rapidly increasing rates. Sorting out these trends and making sense of them provides the basis for opportunity decision making. Which ones will dominate and which ones will fade? Understanding this is crucial for business success.

your challenge (either individually or as a group) is to identify a trend, technology, entertainment or design that is likely to alter the way in which business is conducted in the future. Once you have identified this, be prepared to discuss which of the six dimensions of the general environment this will affect. (There may be more than one.) • Describe the impact.

• List some business opportunities that will come from this.

• Identify some existing organisations that stand to benefit.

• What, if any, are the ethical implications?

you should consult a wide variety of sources. For example, the Gartner Group and mcKinsey & Co. both produce market research and forecasts for business. There is also a host of web forecasting tools and addresses. These include TED (see http://www.ted.com for videos of its discussions), which hosts an annual conference for path- breaking new ideas. Similarly, the Davinci Institute, Institute for Global Futures and a wide range of others have their own unique visions of tomorrow’s environment.

76 PART 1: STRATEGIC MANAGEMENT INPUTS

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CASE STUDIES INTRODUCTION A summary of the case analysis process 466

CASE 1 JB Hi-Fi Ltd acquisition of The Good Guys 469

CASE 2 Challenges at Australia Post 480

CASE 3 Nyrstar NV: a case study in a failed vertical integration strategy 486

CASE 4 Virgin Australia: a flight to oblivion? 496

CASE 5 Atlassian 508

CASE 6 The sunshine coast UNESCO biosphere reserve and smart city: a new governance opportunity in a post-pandemic world? 513

CASE 7 CrossFit at the crossroads 520

CASE 8 The movie exhibition industry: 2015 and beyond 538

CASE 9 Pacific drilling: the preferred offshore driller 565

CASE 10 The trivago way – growing without growing up? 582

CASE 11 The Volkswagen emissions scandal 600

CASE 12 Otis in the global elevator industry 611

CASE 13 Dick Smith: the fall of an Aussie icon 618

PA R T 4

465

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Summar y The end-of-chapter summar y lists key points from the chapter, providing a snapshot of the important concepts covered.

Case Studies Apply the case analyses process to in-depth case studies. Thirteen case studies are provided to demonstrate theor y in practice.

Each case includes a Case Link identif ying the relevant chapters where key concepts explored in the case are introduced in the book.

Review questions These questions promote the application and critical analysis of theories and practices as well as encourage group discussion.

Experiential exercises These exercises emphasise applied learning, giving students the opportunity to put knowledge into practice.

END-OF-CHAPTER FEATURES

STUDy TOOLS SUMMARY LO1 The organisation’s external environment is challenging

LO2 The external environmental analysis process has four steps: scanning, monitoring, forecasting and assessing. Through environmental analyses, the organisation identifies opportunities and threats.

LO4 Compared with the general environment, the industry environment has a more direct effect on the organisation’s strategic actions. The five forces

KEY TERMS competitor intelligence

complementors

demographic segment

economic environment

general environment

global segment

industry

industry environment

opportunity

physical environment segment

political/legal segment

sociocultural segment

strategic group

technological segment

threat

REVIEW QUESTIONS 1. Why is it important for an organisation to study and

understand the external environment?

2. What are the differences between the general environment and the industry environment? Why are these differences important?

3. What are the four steps in the external environmental analysis process? What does the organisation want to learn when using this process?

4. What are the seven segments of the general environment? Explain the differences among them. Is any segment more important than another?

5. How do the five forces of competition in an industry affect its profit potential? Explain.

6. What is the importance of collecting and interpreting data and information about competitors? What practices should an organisation use to gather competitor intelligence, and why?

CHAPTER 2 THE ExTERnAL EnvIROnmEnT: OPPORTUnITIES, THREATS, InDUSTRy COmPETITIOn AnD COmPETITOR AnALySIS

BK-CLA-HANSON_7E-210018-Chp02.indd 75 2/9/21 1:13 PM

END-OF-BOOK FEATURES

xiv

Guide to the online resources

INSTRUCTOR’S MANUAL The Instructor’s Manual includes: • knowledge objectives • chapter outlines • lecture notes • answers to review questions

• instructor’s notes for experiential exercises • instructor’s notes for MindTap including What Would

You Do?, You Make the Decision and Video Cases. • additional questions and exercises.

FOR THE INSTRUCTOR

MINDTAP Premium online teaching and learning tools are available on the MindTap platform – the personalised eLearning solution.

MindTap is a flexible and easy-to-use platform that helps build student confidence and gives you a clear picture of their progress. We partner with you to ease the transition to digital – we’re with you ever y step of the way.

The Cengage Mobile App puts your course directly into students’ hands with course materials available on their smartphone or tablet. Students can read on the go, complete practice quizzes or participate in interactive real-time activities.

MindTap for Hanson’s Strategic Management is full of innovative resources to support critical thinking, and help your students move from memorisation to master y! Includes: • Hanson’s Strategic Management eBook • ‘What would you do?’ polling questions • Video Cases • ‘You make the decision’ simulation activities.

MindTap is a premium purchasable eLearning tool. Contact your Cengage learning consultant to find out how MindTap can transform your course.

Cengage is pleased to provide you with a selection of resources that will help you prepare your lectures. These teaching tools are accessible via cengage.com.au/instructors for Australia

or cengage.co.nz/instructors for New Zealand.

CASE STUDY RESOURCES Case notes for each of the end-of-book case studies, a case analysis rubric and case matrix allow instructors to assign case studies for analysis. Cases and case notes from the previous editions are also available.

TEST BANK A bank of questions has been developed in conjunction with the text for creating quizzes, tests and exams for your students. Create multiple test versions in an instant and deliver tests from your LMS, your classroom, or wherever you want using Cognero. Cognero test generator is a flexible online system that allows you to import, edit and manipulate content from the text’s test bank or elsewhere, including your own favourite test questions.

xvGUIDE TO THE ONLINE RESOURCES

FOR THE STUDENT

POWERPOINT™ PRESENTATIONS Use the chapter-by-chapter PowerPoint presentations to enhance your lecture presentations and handouts to reinforce the key principles of your subject.

ARTWORK FROM THE TEXT Add the digital files of graphs, pictures and flowcharts into your course management system, use them in student handouts, or copy them into your lecture presentations.

MINDTAP MindTap is the next-level online learning tool that helps you get better grades!

MindTap gives you the resources you need to study – all in one place and available when you need them. In the MindTap Reader, you can make notes, highlight text and even find a definition directly from the page. If your instructor has chosen MindTap for your subject this semester, log in to MindTap to: • Get better grades • Save time and get organised • Connect with your instructor and peers • Study when and where you want, online and mobile • Complete assessment tasks as set by your instructor.

When your instructor creates a course using MindTap, they will let you know your course key so you can access the content. Please purchase MindTap only when directed by your instructor. Course length is set by your instructor.

P R E FAC E This new seventh Asia–Pacific edition of Strategic Management: Competitiveness and Globalisation has been updated to include new mater ial and cases from Aust ralia, New Zealand and the Asia–Paci fic region. It continues to integrate ‘cutting edge’ research and content from the US authors Hitt, Ireland and Hoskisson.

Features • Australian and Asia–Pacific material in all chapters • chapter opening cases and ‘Strategic focus’ segments • organisation-specific examples that are integrated with each chapter’s topic • inclusion of public sector and community organisation examples • substantial emphasis on use of the internet and e-commerce • substantial emphasis on corporate governance • coverage of strategic issues in the 21st-centur y competitive landscape, including a strong emphasis on the

competition created through e-commerce ventures and start-ups • global coverage with an emphasis on the international context • new and current research integrated throughout the chapters’ conceptual presentations • review questions, including application discussion questions and ethics questions at the end of each chapter • experiential exercises • a summar y of the case analysis process. The book emphasises a global outlook with comprehensive coverage of Australian and international concepts

and issues. The book contains a wealth of references. Drawn from the business literature and academic research, these mater ials are used to present cur rent and accurate descr iptions of how organisations use the strategic management process. Our goal while preparing this book has been to present you, our readers, with a complete, accurate and up-to-date explanation of the strategic management process as it is used in the global economy. We have sought to include enough local content to stimulate interest, and enough international content to reflect the nature of current strategic management.

The book’s focus This book is intended for use pr imar ily in strategic management and business policy courses. The mater ials presented in the 13 chapters have been researched thoroughly. Both the academic, scholarly literature and the business, practitioner literature were studied and then integrated to prepare this edition. The academic literature provides the foundation to develop an accurate yet meaningful description of the strategic management process. The business practitioner literature yields a rich base of current domestic and global examples to show how the strategic management process’s concepts, tools and techniques are applied in different organisations.

Our discussion of the strategic management process is both traditional and contemporar y. In maintaining t rad it ion, we exa m i ne i mpor ta nt mater ia ls t hat have h istor ica l ly been a pa r t of u ndersta nd i ng st rateg ic management. For example, we thoroughly examine how to analyse an organisation’s external environment and internal environment.

xvi

The strategic advantage The st rategic management process is cr itical to organisational success. As descr ibed in Chapter 1, st rategic competitiveness is achieved when an organisation develops and exploits a sustained competitive advantage. Attaining such an advantage results in the earning of above-average returns; that is, returns that exceed those an investor could expect from other investments with similar amounts of risk.

The competitive advantage Success in the 21st-centur y competitive landscape requires specific capabilities, including the abilities to:

1 use scarce resources wisely to maintain the lowest possible costs 2 constantly anticipate frequent changes in customers’ preferences 3 adapt to rapid technological changes 4 identify, emphasise and effectively manage what an organisation does better than its competitors 5 continuously structure an organisation’s operations so objectives can be achieved more efficiently 6 successfully manage and gain commitments from a culturally diverse workforce.

The global advantage Critical to the approach used in this text is the fact that all organisations face increasing global competition. Organisations no longer operate in relatively safe domestic markets, as Australian supermarkets have discovered. In the past, many companies produced large quantities of standardised products. Today, organisations typically compete in a global economy that is complex, highly uncertain and unpredictable. To a greater degree than in a primarily domestic economy, the global economy rewards effective performers, whereas poor performers are forced to restructure significantly to enhance their strategic competitiveness. As noted earlier, increasing globalisation and the technological revolution have produced a new competitive landscape in the 21st centur y. This landscape presents a challenging and complex env ironment for organisations, but one that also has oppor tunities. The importance of developing and using these capabilities should not be underestimated.

Final comment Organisations face exciting and dy namic competitive challenges in the 21st centur y. These challenges, and effective responses to them, are explored in Strategic Management: Competitiveness and Globalisation. The strategic management process conceptualised in this text offers valuable insights and knowledge to those committed to meeting successfully the challenge of dynamic competition. Thinking strategically – as this book challenges you to do – increases the likelihood that you will assist your organisation to achieve strategic success. In addition, continuous practice with strategic thinking and the use of the strategic management process gives you skills and knowledge that will contribute to career advancement and success. Finally, we want to wish you all the best and nothing other than complete success in all of your endeavours.

Dallas Hanson Hobart

xviiPREFACE

A B O U T T H E AU T H O R S Dallas Hanson Dallas Hanson lectured in strategic management at the University of Tasmania for many years. He has wide- ra ng i ng i ntellectua l (a nd scholast ic) i nterests, i nclud i ng bra nd ma nagement, tou r ism, g reen st rateg y a nd governance. He has won teaching awards for his work in strategy and enjoys the challenge of making strategy i nterest i ng a nd engag i ng. He now adv ises as a st rateg y consu lta nt, wh ich cont i nua l ly rem i nds h i m t hat organisation politics matter in the world of strategy, while logic does not always win in the process of strategy implementation.

Kim Backhouse Kim Backhouse has lectured in strategic management, law and other business units for the past two decades in the Faculty of Business and Faculty of Law at the University of Tasmania. Kim has also facilitated units in legal and risk for the Australian Institute of Company Directors and runs short courses on governance through the Law School at the University of Tasmania. Kim is passionate about research and teaching in strategic management and governance and enjoyed being part of Dr Hanson’s teaching team in strategy for many years. Dr Backhouse has published in a variety of journals on governance and corporate social responsibility. She has won teaching awards for many years for her work in strategy and organisational behaviour. Dr Backhouse also works in part-time executive roles outside of the academic landscape and consults regularly to boards on complex governance issues. Kim has a current practising certificate from the Law Society of Tasmania, Fellow of the Governance Institute of Australia and is a current board member of the Governance Institute of Australia (Tas). Kim currently sits on several not-for-profit boards such as ACH AT and has been sitting on various boards for the past two decades.

David Leaney Dav id Leaney lectures in strategic management at post-graduate level at the Australian National University (A NU) and the Australian Graduate School of Management (AGSM) at the University of NSW. He also lectures in marketing and global supply chain management at post-graduate and under-graduate levels. David brings a practitioner’s perspective, fuelled by his work as a management consultant and his role as the Managing Director of Strategium – an IT and business strategy consultancy. David is the chair of several private company boards in professional ser vices and technology, and advises clients in the public sector, defence, utilities, banking and the retail sector. He is sought as a facilitator for executive workshops and the development of corporate strategy and organisational change management. David is a Fellow of the Institute of Managers and Leaders (FIML) and a Certified Management Consultant (CMC).

Michael A. Hitt Texas A&M University Michael A. Hitt is a Distinguished Professor and holds the Joe B. Foster Chair in Business Leadership at Texas A&M University. He received his PhD from the University of Colorado and has more than 260 publications, including 26 co-authored or co-edited books. He has been recognised as one of the 10 most cited scholars in management

xviii

over a 25-year period in an article published in the 2008 volume of the Journal of Management. He is co-editor of numerous management, organisation, strategy and development books and has ser ved on the editorial review boards of multiple journals, including the Academy of Management Journal, Academy of Management Executive, Journal of Applied Psychology, Journal of Management, Journal of World Business and Journal of Applied Behavioral Sciences.

In addition, Professor Hitt has served as Consulting Editor and Editor of the Academy of Management Journal and is currently a co-editor of the Strategic Entrepreneurship Journal. He is the current past president of the Strategic Management Society, is a past president of the Academy of Management and is a Fellow in the Academy of Management and in the Strategic Management Society. He received an honorar y doctorate from the Universidad Carlos III de Madrid and is an Honorary Professor and Honorary Dean at Xi’an Jiao Tong University. He has received the Irwin Outstanding Educator Award and the Distinguished Ser vice Award from the Academy of Management and has received best paper awards for ar ticles published in the Academy of Management Journal, Academy of Management Executive and Journal of Management.

R. Duane Ireland University of Richmond R. Duane Ireland is a Distinguished Professor and holds the Conn Chair in New Ventures Leadership at the Mays Business School, Texas A& M University, where he previously ser ved as head of the management department. He teaches st rateg ic management cou rses to u nderg raduate, masters, doctoral and execut ive students and has more than 175 publications, including more than a dozen books. His research on diversification, cor porate entrepreneurship and strategic entrepreneurship has been published in Academy of Management Journal, Academy of Management Executive, Strategic Management Journal, Journal of Management, Strategic Entrepreneurship Journal, Entrepreneurship Theory and Practice and Journal of Management Studies, among others. He has ser ved on editorial review boards for the Academy of Management Journal, Journal of Management, Journal of Business Venturing, Journal of Business Strategy and European Management Journal. He is current editor of the Academy of Management Journal and has completed ed itor ial ter ms for Academy of Management Journal, Academy of Management Executive and Entrepreneurship Theory and Practice. He has co-edited special issues of Academy of Management Review, Academy of Management Executive, Journal of Business Venturing and Organizational Research Methods.

Professor Ireland has received awards for the best article published in Academy of Management Executive and Academy of Management Journal. He is a Fellow of the Academy of Management and 21st Century Entrepreneurship Research Scholar, and ser ved a three-year term as Representative-at-Large for the Academy of Management’s Board of Governors. He received the Award for Outstanding Intellectual Contributions to Competitiveness Research from the A merican Society for Competitiveness and the USASBE Scholar in Corporate Entrepreneurship Award.

Robert E. Hoskisson The University of Oklahoma Robert E. Hoskisson is the George R. Brown Chair of Strategic Management at the Jesse H. Jones Graduate School of Business, Rice University. He received his PhD from the University of California-Irvine. Dr Hoskisson’s research topics focus on corporate governance, acquisitions and divestitures, corporate and international diversification

xixABOUT THE AUTHORS

and cooperative strategy. He teaches courses in corporate and international strategic management, cooperative strategy and strategy consulting. Dr Hoskisson’s research has appeared in more than 120 publications, including the Academy of Management Journal, Strategic Management Journal, Journal of Management, Journal of International Business Studies, Journal of Management Studies and the Academy of Management Executive. He has co-authored 26 books, including recent books on business strategic and competitive advantage, and is currently Associate Editor of the Strategic Management Journal and Consulting Editor for the Journal of International Business Studies. He also ser ves on the Editorial Review board for the Academy of Management Journal. Professor Hoskisson has ser ved on editorial boards for the Academy of Management Journal, Journal of Management, Journal of Management Studies and Entrepreneurship Theory and Practice, among others. He is Special Professor at the University of Nottingham and Honorar y Professor at X i’an Jiao Tong University.

Professor Hoskisson is also a Fellow of the Strategic Management Society and has received awards from the A mer ican Society for Competitiveness and the Mar r iott School of Management, Br igham Young University. He completed three years of ser vice as Representative-at-Large for the Board of Governors of the Academy of Management and currently ser ves on the Board of Directors of the Strategic Management Society.

xx ABOUT THE AUTHORS

AC K N OW L E D G E M E N T S To my wonderful wife Meg for supporting me in consulting full-time, running three companies, teaching at two universities, and adding a textbook to my list of additional interests.

David Leaney

This has been a long journey and a heartfelt thanks to my children who have patiently waited on the sidelines for me to complete my part and who forfeited many weekends with their mother, in pursuit of academic excellence. I would like to thank Dallas Hanson for his continued support of my academic career and to my dear friends who have supported me from afar: Dr Kevin Radecki (USA) and Fran Scherrer (Spain). I hope you enjoy this edition.

Kim Backhouse

Cengage would also like to thank Greg Zooeff and Francis Hartnett for contributing new case studies to this edition, and would also like to thank the following reviewers for their incisive and helpful feedback:

• Nguyen Viet Ngo – Australian National University • Elisa Backer – Federation University Australia • Gar y Mankelow – University of Newcastle • David Robinson – Holmes Institute • Fiona Hurd – Auckland University of Technology • Harsha Sar vaiya – Griffith University • Austin Norman – Victoria University • Ralitza Bell – Australian Catholic University, North Sydney • Lisa Daniel – University of the Sunshine Coast • Stuart Middleton – University of Queensland • Georges Baume – University of Adelaide.

Ever y effort has been made to trace and acknowledge copyright. However, if any infringement has occurred, the publishers tender their apologies and invite the copyright holders to contact them.

xxi

PA R T 1 STRATEGIC MANAGEMENT INPUTS 1 Strategic management and strategic

competitiveness 2

2 The external environment: opportunities, threats, industry competition, and competitor analysis 34

3 The internal organisation: resources, capabilities, core competencies, and competitive advantages 72

Strategic management and strategic competitiveness

CH AP

TE R

technological changes shape it LO3 use the industrial organisation (I/O) model to explain how companies can earn

above-average returns LO4 use the resource-based model to explain how companies can earn above-

average returns LO5 describe vision and mission and discuss their value LO6 define and classify the four major stakeholder groups and describe their ability

to influence organisations LO7 describe the work of strategic leaders.

Learning Objectives

to almost 0.8 per cent of the world’s population. In 2018, McDonald’s had 37 855 total restaurants globally, located in 120 different countries and 14 155 stores in the US alone. China has 2223 stores compared with Japan 2975, the UK 1261, Canada 1443 and Australia 920. Globally, McDonald’s hires 1.9 million employees, and it hires approximately one million employees per year in the USA. In 2018, its annual revenue was $21 billion and its net income was $5.9 billion.

McDonald’s: Restaurant expansion since 1955.

Source: https://mcdonalds.com.au/about-maccas/maccas-story.

McDonald’s and brand recognition

OPENING CASE STUDY

N u

m b

er o

f re

st au

ra n

5000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

1000

1968

45 000

2000

1972

5000

1978 1986

25 000

1999

38 000

2020

9000

CHAPTER 1 STRATEGIC MANAGEMENT AND STRATEGIC COMPETITIVENESS

As we can see from the opening case, McDonald’s organisations in Australia, the UK, China, India, Japan and the USA are all in different competitive positions. Therefore, we can conclude that they are not equally competitive (i.e. they are unable to achieve similar strategic competitiveness). In the USA, the organisation is now usi ng t he st rateg ic ma nagement process (see Fig u re 1.1) as t he fou ndat ion for cha nges to t he commitments, decisions and actions it under took to pursue strategic competitiveness and above-average terms. It may well succeed, given time.1

The types of behaviours exhibited by top performers like McDonald’s represent a strategic management process (see Fig u re 1.1), wh ich is a f u l l set of com m it ments, decisions a nd act ions requ i red for a n organ isat ion to ach ieve st rategic compet it iveness and ea r n above-average retu r ns. The organ isat ion’s fi rst step in the process is to analyse its external environment and internal organisation to determine its resources, capabilities and core competencies – the sources of its ‘strategic inputs’. We will now analyse each of the different components of the strategic management process.

Strategic competitiveness is achieved when an organisation successfully formulates and implements a value-creating strateg y. A strategy is an integrated and coordinated set of commitments and actions desig ned to ex ploit core competencies a nd ga i n a compet it ive adva ntage. W hen choosi ng a st rateg y, orga n isat ions ma ke choices a mong compet ing alter nat ives as t he pat hway for decid ing how t hey w ill pursue strategic competitiveness. 3

I n t h is sense, t he chosen st rateg y i nd icates what t he orga n isat ion w i l l do as wel l as what t he organisation will not do. A n organisation’s strateg y also demonstrates how it differs from its competitors.

A n organ isat ion has a compet it ive advantage when it implements a st rateg y t hat creates super ior value for customers a nd t hat its compet itors a re u nable to duplicate or fi nd too cost ly to im itate.4 A n organisation can be confident that its strategy has resulted in one or more useful competitive advantages only after competitors’ effor ts to duplicate its strategy have ceased or failed. In addition, an organisation must understand that no competitive advantage is permanent, and this was witnessed in 2020 during the Covid-19 pandemic.5 The speed with which competitors are able to acquire the skills needed to duplicate

strategic management process the full set of commitments, decisions and actions required for an organisation to achieve strategic competitiveness and earn above-average returns strategic competitiveness achieved when an organisation successfully formulates and implements a value- creating strategy