Strategic Management and Competitive Advantage

393 Pages·2012·71.77 MB·English

by  Barney Hesterly

What's Out?
Models, concepts, and topics that don't pass a simple test:
"Doesthis help students analyze casesand realbusiness situations?"
What's In?
tiVRIO" - an integrativeframework (see next page for details).
Broadenough to apply in analyzing a variety ofcasesand
real business settings.
Simple enough to imderstand and teach.
V R I O
The Results?
Provides students with the tools they need to do strategic analysis.
Nothing more. Nothing less.
^:
IV R I O
"VALUE. RARITY. IMITABILITY. ORGANIZATION."
What Is It?
Thisbookisnotjustalistofconcepts,models,and theories.Itisthefirst
undergraduatetextbooktointroduceatheory-based,multi-chapterorganizing
frameworktoaddadditionalstructuretothefieldofstrategicmanagement.
"VRIO"isamechanismthatintegratestwoexistingtheoreticalframeworks:
thepositioningperspectiveandtheresource-basedview.Itistheprimarytool
foraccomplishinginternalanalysis.Itstandsforfourquestionsonemustask
aboutaresourceorcapabilitytodetermineitscompetitivepotential:
1.The QuestionofValue:Doesaresourceenableafirmtoexploitan
environmentalopportunity, and/orneutralizeanenvironmentalthreat?
2.TheQuestionofRaritjr:Isaresourcecurrentlycontrolledbyonlyasmall
numberofcompetingfirms?
3. The QuestionofImitability:Dofirmswithoutaresourcefaceacost
disadvantageinobtainingordevelopingit?
4.TheQuestion ofOrganization: Areafirm'sotherpoliciesandprocedures
organizedtosupporttheexploitationofitsvaluable,rare,andcostly-to-
imitateresources?
What's the Benefit of the VRIO Framework?
TheVRIOframeworkistheorganizationalfotmdationofthetext.Itcreatesa
decision-makingframeworkforstudents touseinanalyzingcaseandbusiness
situations.
Students tend toview concepts,models,andtheories(inalloftiieir
coursework)asfi-agmentedand disconnected.Strategyisnoexception.This
viewencouragesrotememorization,notrealunderstanding.VRIO,byserving
asaconsistentframework,connectsideastogether.Thisencouragesreal
understanding,notmemorization.
This understandingenablesstudentstobetteranalyze businesscasesand
situations—thegoalofthecourse.
TheVRIOframework makesitpossibletodiscusstheformulation and
implementationofastrategysimultaneously,withineachchapter.
BecausetheVRIOframeworkprovidesasimpleintegrativestructure,
weareactuallyabletoaddressissuesinthisbookthatarelargelyignored
elsewhere—^includingdiscussionsofverticalintegration,outsourcing,real
optionslogic,and mergersand acquisitions,tonamejustafew.
other Benefits
lysisfiiit QfissntUdra
Chapter Wehavechosenfirmsthatarefamiliartomoststudents.Opening Byhavingcasestightly
Opening casesfocusoniTunes'successinthemusicdownloadindustry,how linkedto thematerial,
Cases Ryanairhasbecomethelowestcostairlineintheworld, howVictoria's studentscandevelopstrategic
Secretdifferentiateditsproducts, howESPNhasdiversifiedits analysisskillsbystudying
operations,andsoforth. firmsfamiliartothem.
Strategy Forprofessorsandstudentsinterestedinunderstandingthefull Customizeyourcourse
in Depth intellectualunderpinningsofthefield,wehaveincludedanoptional asdesiredtoprovide
StrategyinDepthfeatureineverychapter.Knowledgeinstrategic eiuichmentmaterialfor
managementcontinuestoevolverapidly,inwaysthatarewellbeyond advancedstudents.
whatisnormallyincludedinintroductorytexts.
Research TheResearchMadeRelevantfeaturehighlightsverycurrentresearch Showsstudentsthe 49
MadeRelevant findingsrelatedtosomeofthestrategictopicsdiscussedinthatchapter. evolvingnatureofstrategy.
Challenge Thesemightbeofanethicalormoralnature,forcingstudentstoapply Requiresstudentstothink 245
Questions conceptsacrosschapters,applyconceptstothemselves,orextend critically.
chapterideasincreativeways.
ProblemSet ProblemSetasksstudentstoapply theoriesand t<x>isfromthechapter. Sharpensquantitati\'e
Theseoftenrequirecalculations.Theycanbethought ofashomework skills,andprovidesabridge
assignments.Ifstudentsstrugglewiththeseproblemstheymighthave betweenchaptermaterial
troublewiththemorecomplexcases.Theseproblemsolsarelargely andcaseanalvsis.
diagnosticincharacter.
Rthicsand Highlightssomeofthemostimportantdilemmasfacedbyfirmswhen Helpsstudentsmakebetter 210
Strategy creatingandimplementingstrategies. ethicaldecisionsasmanagers.
Strategyin Growingnumberofgraduatesworkforsmallandmedium-sized Thisfeaturehighlightsthe 22
theEmerging firms.Thisfeatiuepresentsanextended example,ineachchapter, uniquechallengesofdoing
Enterprise oftheuniquestrategicproblemsfacingthoseemployedinsmalland strategicanalysisinemerging
medium-sizedfirms. enterprises,andsmalland
medium-sizedfirms.
4
Strategic Management and
Competitive Advantage
CONCEPTS
Jay B.Barney
TheOhioState University
William S. Hesterly
The University of Utah
PHI Learning ILS
New Delhi-110001
2012
ThisIndian Reprint—^425.00
(OriginalU.S. Edition-^8538.00)
STRATEGICMANAGEMENTANDCOMPETITIVEADVANTAGE—Concepts,4thed.
byJayB.Barneyand WilliamS. Masterly
Original edition, entitledStrategicManagementand CompetitiveAdvantage—Concepts,4thed.byJay B.Barney
and William 8. Masterly, publishedbyPearson Education,Inc.,publishing as Pearson Prentice Mall.
Copyright©2012 Pearson Education Inc., Upper Saddle River, NewJersey 07458, U.S.A.
ISBN-978-81-203-4607-9
All rights reserved.Nopartofthisbookmaybereproducedortransmittedinanyformorbyanymeans,electronic
ormechanical, includingphotocopying,recordingorbyanyinformationstorageretrievalsystem,withoutpermission
from Pearson Education, Inc.
Credits and acknowledgmentsborrowedfromother sources and reproduced, withpermission, inthis textbookappear on the
appropriate pagewithintext.
Microsoft®andWindows®are registeredtrademarksofthe MicrosoftCorporationinthe U.S.A. andothercountries.Screenshots
andiconsreprintedwithpermissionfromtheMicrosoftCorporation.Thisbookisnotsponsoredorendorsedbyoraffiliatedwiththe
Microsoft Corporation.
Many ofthe designations bymanufacturers and sellerto distinguish theirproducts are claimed as trademarks. Wherethose
designationsappearinthisbook,and thepublisherwasawareofatrademarkclaim,thedesignationshavebeenprinted ininitial
caps or ail caps.
Indian edition published by PMI teaming Private Limited.
Thiseditionismanufactured inIndia,and isauthorized forsaleinIndia,Pakistan,SriLanka,Bhutan,Bangladesh,
Nepal and the Maldives only.
PublishedbyAsokeK. Ghosh, PMI Learning PrivateLimited, M-97, ConnaughtCircus, NewDelhi-110001 and
Printed by MohanMakhijanI at Rekha Printers Private Limited,NewDelhi-110020.
This book is dedicated to my expanding family: my wife, Kim; our
children, Lindsay, Kristian,and Erin;their spouses, Ryan,Amy,and
Dave; and most of all, our eight grandchildren, Isaac, Dylanie,
Audrey, Chloe, Lucas,Royal,Lincoln,and Nolan. They all help me
remember thatno successcould compensatefor failure in the home.
Jay B. Barney
Columbus,Ohio
Thisbookisformy familywho has taught me life'sgreatestlessons
about what matters most. Tomy wife, Denise; my sons. Drew,Ian,
Austin, and Alex; my daughters, Lindsay and Jessica (and their
husbands.Matt and John);andgrandchildren, EUie,Owen, Emerson,
Cade, and Elizabeth.
WilliamHesterly
SaltLakeCity,Utah
Brief Content;
Part 1: THf: I001.S ofSTR^HGIC AMAIYSIS
CHAPTER 1 WhatIsStrategyand theStrategicManagementProcess? 2
CHAPTER 2 EvaluatingaFirm's ExternalEnvironment 28
CHAPTER 3 EvaluatingaFirm's InternalCapabilities 64
Part2: BUSIMESS-LEVPLSTRATPGIES
CHAPTER 4 CostLeadership 102
CHAPTER 5 Product Differentiation 130
Part3: CORPORATE S TRAIEGIES
CHAPTER 6 VerticalIntegration 162
CHAPTER 7 Corporate Diversification 188
CHAPTERS OrganizingtoImplementCorporateDiversification 220
CHAPTERS StrategicAlliances 248
CHAPTER 10 Mergers andAcquisitions 276
CHAPTER 11 InternationalStrategies 306
Appendix: AnalyzingCasesandPreparingforClass Discussions 343
Glossary 347
CompanyIndex 355
Name Index 359
Subject Index 363
Contents
4
Port1: THE rOOLS ofSTRATEGIC AMAIYSIS
CHAPTER 1 What IsStrategyand the StrategicManagement Process?
OpeningCase:TheMusicDownloadIndustry 2 TheRelationshipBetweenEconomicandAccounting
PerformanceMeasures 19
StrategyandtheStrategicManagementProcess 4
DefiningStrategy 4 EmergentVersusintendedStrategies 20
The StrategicManagementProcess 4 Ethicsand Strategy:Stockholders VersusStakeholders 21
StrategyintheEmergingEnterprise:EmergentStrategies
WhatIsCompetitiveAdvantage? 10
andEntrepreneurship 22
ResearchMadeRelevant:How SustainableAre
CompetitiveAdvantages? 12 WhyYouNeedtoKnowAboutStrategy 23
TheStrategicManagementProcess,Revisited 13 Summary 24
ChallengeQuestions 26
MeasuringCompetitiveAdvantage 13
AccountingMeasuresofCompetitiveAdvantage 13 ProblemSet 26
EconomicMeasuresofCompetitiveAdvantage 17 EndNotes 27
StrategyinDepth:EstimatingaFirm's WeightedAverage
CostofCapital 18
CHAPTER 2 Evaluating aFirm's ExternalEnvironment 28
OpeningCase:CompetingCollege? 28 ResearchMade Relevant:TheImpactofIndustry
andFirmCharacteristicsonFirmPerformance 49
UnderstandingaFirm'sGeneral Environment 30
IndustryStructureand Environmental
TheStructure-Conduct-PerformanceModelofFirm
Opportunities 50
Performance 33
OpportunitiesinFragmented Industries:
Ethics andStrategy:IsaFirmGainingaCompetitive
Consolidation 50
AdvantageGoodfor Society? 34
OpportunitiesinEmergingIndustries: First-Mover
TheFiveForcesModelofEnvironmental Advantages 51
Threats 35 OpportunitiesinMatureIndustries:Product
TheThreatofEntry 36 Refinement,Service,andProcessInnovation 53
Strategy inDepth:TheFiveForcesFramework StrategyintheEmergingEnterprise:Microsoft
and theS-C-PModel 37 Grows Up 55
TheThreatofRivalry 42 OpportunitiesinDecliningIndustries:Leadership,
TheThreatofSubstitutes 43 Niche,Harvest,andDivestment 56
TheThreatofPowerfulSuppliers 44
TheThreatofPowerful Buyers 46 Summary 59
ChallengeQuestions 61
The Five Forces ModelandAverageIndustry
ProblemSet 61
Performance 47
AnotherEnvironmentalForce:Complementers 48 EndNotes 62
Contents
CHAPTER 3 EvaluatingaFirm'sInternalCapabilities 64
OpeningCase:HaseBayLostIts Way? 64
imitationandCompetitiveDynamics
TheResource-BasedViewoftheFirm 66 inanIndustry 87
WhatAreResourcesandCapabilities? 66 NotRespondingtoAnotherFirm'sCompetitive
CriticalAssumptionsoftheResoiuce-BasedView 67 Advantage 87
StrategyinDepth:RicardianEconomicsandthe ChangingTacticsinResponsetoAnotherFirm's
CompetitiveAdvantage 89
Resource-BasedView 68
ChangingStrategiesinResponsetoAnotherFirm's
TheVRIOFramework 68
CompetitiveAdvantage 90
TheQuestionofValue 69
StrategyintheEmergingEnterprise:AreBusiness ImplicationsoftheResource-BasedView 91
PlansGoodforEntrepreneurs? 71 WhereDoestheResponsibilityforCompetitive
EthicsandStrategy:ExternalitiesandtheBroader AdvantageinaFirmReside? 92
ConsequencesofProfitMaximization 73 CompetitiveParityandCompetitiveAdvantage 92
TheQuestionofRarity 75 Difficult-to-ImplementStrategies 93
TheQuestionofImitability 76 SociallyComplexResources 94
TheQuestionofOrganization 81 TheRoleofChganization 94
ResearchMadeRelevant:StrategicHumanResource
Summary 95
ManagementResearch 82
Challenge Questions 97
ApplyingtheVRIOFramework 83 ProblemSet 97
Appl5dngtheVRIOFrameworktoSouthwest EndNotes 98
Airlines 85
Part2: BUSIhESS-LEVELS ERAEEGIES
CHAPTER 4 CostLeadership 102
OpeningCase:TheWorld'sLowest-CostAirline 102 CostLeadershipandSustainedCompetitive
WhatIsBusiness-LevelStrategy? 104 Advantage 116
TheRarityofSourcesofCostAdvantage 116
WhatIsCostLeadership? 104
TheImitabilityofSourcesofCostAdvantage 118
SourcesofCostAdvantages 104
Strategyin the EmergingEnterprise:TheOaklandA's:
ResearchMadeRelevant:HowValuableIsMarket
InventingaNewWaytoPlayCompetitiveBaseball 122
Share—Really? Ill
EthicsandStrategy:TheRacetotheBottom 113 OrganizingtoImplementCostLeadership 123
OrganizationalStructureinImplementingCost
TheValueofCostLeadership 113
Leadership 123
CostLeadershipandtheThreatofEntry 114
ManagementControlsinImplementingCost
CostLeadershipandtheThreatofRivalry 114
Leadership 125
CostLeadershipand theThreatofSubstitutes 114
CompensationPoliciesand ImplementingCost
CostLeadershipand theThreatofPowerful
LeadershipStrategies 126
Suppliers 114
StrategyinDepth:TheEconomicsofCost Summary 126
Leadership 115 ChallengeQuestions 128
CostLeadershipand theThreatofPowerful ProblemSet 128
Buyers 116 EndNotes 129
Contenfs
CHAPTER 5 ProductDifferentiation 130
OpeningCase:WhoIs Victoria,and WhatIsHer OrganizingtoImplementProductDifferentiation 149
OrganizationalStructureand ImplementingProduct
Secret? 130
Differentiation 150
WhatIsProductDifferentiation? 132
ManagementControlsand ImplementingProduct
BasesofProductDifferentiation 133
Differentiation 150
ResearchMadeRelevant:DiscoveringtheBases
StrategyintheEmergingEnterprise:CanOnlySmall
ofProductDifferentiation 135
FirmsBeInnovative? 151
ProductDifferentiationandCreativity 139
CompensationPoliciesand ImplementingProduct
TheValueofProductDifferentiation 139 DifferentiationStrategies 154
ProductDifferentiationandEnvironmentalThreats 139
CanFirmsImplementProductDifferentiationandCost
StrategyinDepth:TheEconomicsofProduct
LeadershipSimultaneously? 154
Differentiation 140
No:TheseStrategiesCannotBeImplemented
ProductDifferentiationandEnvironmental
Simultaneously 155
Opportunities 141
Yes:TheseStrategiesCan BeImplemented
ProductDifferentiationandSustainedCompetitive Simultaneously 156
Advantage 142
Summary 157
RareBasesforProductDifferentiation 142
Ethicsand Strategy:ProductClaimsandtheEthical ChallengeQuestions 159
DilemmasinHealthCare 143 ProblemSet 159
TheImitabilityofProduct Differentiation 144 EndNotes 160
Part3: CORPORATE STRATEGIES
CHAPTER 6 VerticalIntegration 162
OpeningCase:OutsourcingResearch 162 TheRarity ofVerticalIntegration 175
EthicsandStrategy:TheEthicsofOutsourcing 175
WhatIsCorporateStrategy? 164
TheImitabilityofVerticalIntegration 177
WhatIsVerticalIntegration? 164
OrganizingtoImplementVerticalIntegration 178
TheValueofVerticalIntegration 165 OrganizationalStructureandImplementingVertical
StrategyinDepth:MeasuringVerticalIntegration 166
Integration 178
VerticalIntegrationand theThreatofOpportunism 167
Strategyin theEmergingEnterprise: Oprah,Inc. 179
VerticalIntegrationand FirmCapabilities 169 ManagementControlsand ImplementingVertical
VerticalIntegrationandFlexibility 170 Integration 180
ApplyingtheTheoriestotheManagementofCall
CompensationinImplementingVerticalIntegration
Centers 171 Strategies 181
ResearchMadeRelevant:EmpiricalTestsofTheories
ofVerticalIntegration 172 Summary 184
IntegratingDifferentTheoriesofVerticalIntegration 174 ChallengeQuestions 186
ProblemSet 186
Vertical IntegrationandSustainedCompetitive
EndNotes 187
Advantage 174