Strategic Management, Sixth Edition
Frank T. Rothaermel
CONTENTS
PART ONE / ANALYSIS 2
CHAPTER 1
WHAT IS STRATEGY? 4
CHAPTER CASE 1 / Part I
Tesla: The Trillion-Dollar Tech Titan 5
1.1 What Strategy Is: Gaining and Sustaining
Competitive Advantage 7
Crafting and Implementing Strategy at Tesla 7
What is Competitive Advantage? 12
1.2 Stakeholder Strategy and Competitive
Advantage 15
Value Creation 15
Stakeholder Impact Analysis 17
1.3 The Analysis, Formulation, Implementation (AFI)
Strategy Framework 22
Key Topics and Questions of the AFI
Strategy Framework 23
1.4 Implications for Strategic Leaders 24
CHAPTER CASE 1 / Part II 25
CHAPTER 2
STRATEGIC LEADERSHIP: MANAGING THE STRATEGY
PROCESS 32
CHAPTER CASE 2 / Part I
Facebook Becomes Meta 33
2.1 Strategic Leadership 34
What Do Strategic Leaders Do? 35
Strategic Leadership at Meta’s Facebook 37
How Do You Become a Strategic Leader? 38
The Strategy Process Across Levels: Corporate, Business,
and Functional Leaders 41
2.2 Vision, Mission, and Values 43
A Purpose-Driven Vision 44
Mission 51
Values 51
2.3 The Strategic Management Process 52
Top-Down Strategic Planning 53
Scenario Planning 54
Strategy as Planned Emergence: Top Down and
Bottom Up 57
2.4 Strategic Decision Making 63
Strategic Inflection Points 63
Two Distinct Modes of Decision Making 65
Cognitive Biases and Decision
Making 66
How to Improve Strategic Decision Making 70
2.5 Implications for Strategic Leaders 71
CHAPTERCASE 2 / Part II 72
CHAPTER 3
EXTERNAL ANALYSIS: INDUSTRY STRUCTURE,
COMPETITIVE FORCES, AND STRATEGIC
GROUPS 80
CHAPTERCASE 3 / Part I
Airbnb’s Pandemic Pivot 81
3.1 The PESTEL Framework 83
Political Factors 83
Economic Factors 84
Sociocultural Factors 86
Technological Factors 87
Ecological Factors 89
Legal Factors 89
3.2 Industry Structure and Firm Strategy: The Five
Forces Model 90
Industry vs. Firm Effects In Determining Firm
Performance 90
Competition in the Five Forces Model 91
The Threat of Entry 92
The Power of Suppliers 97
The Power of Buyers 98
The Threat of Substitutes 99
Rivalry Among Existing Competitors 100
Applying the Five Forces Model to
the U.S. Airline Industry 107
A Sixth Force: The Strategic Role of Complements 109
3.3 Changes over Time: Entry Choices and Industry
Dynamics 110
Entry Choices 110
Industry Dynamics 112
3.4 Performance Differences within the
Same Industry: Strategic Groups 116
The Strategic Group Model 117
Mobility Barriers 118
Strategic Group Dynamics 119
3.5 Implications for Strategic Leaders 120
CHAPTERCASE 3 / Part II 121
CHAPTER 4
INTERNAL ANALYSIS: RESOURCES, CAPABILITIES,
AND CORE COMPETENCIES 128
CHAPTERCASE 4 / Part I
Five Guys’ Core Competency: “Make the Best Burger.
Don’t Worry about Cost.” 129
4.1 From External to Internal Analysis 131
4.2 Core Competencies 132
Leveraging Core Competencies Requires Focus on What to
Do and What Not to Do 132
Resources and Capabilities 137
4.3 The Resource-Based View 138
Resource Heterogeneity and Resource Immobility 140
The VRIO Framework 141
Isolating Mechanisms: How to Sustain a Competitive
Advantage 146
4.4 The Dynamic Capabilities Perspective 151
Core Rigidities 151
Dynamic Capabilities 152
Resource Stocks and Resource Flows 152
4.5 The Firm Value Chain and Strategic
Activity
Systems 154
Firm Value Chain 154
Strategic Activity Systems 157
4.6 Implications for Strategic Leaders 160
Using Swot Analysis to Generate Insights From External
and Internal Analysis 160
CHAPTERCASE 4 / Part II 162
CHAPTER 5
SHARED VALUE AND COMPETITIVE ADVANTAGE 168
CHAPTERCASE 5 / Part I
Patagonia: A Pioneer in Creating Shared Value 169
5.1 From Corporate Social Responsibility to Creating
Shared Value 171
Shareholder Capitalism 172
Shareholder Capitalism in Crisis? 174
Stakeholder Capitalism and Shared Value 175
5.2 Competitive Advantage 181
Accounting Metrics 181
Shareholder Value Creation 183
Economic Value Creation 186
The Balanced Scorecard 192
The Triple Bottom Line 195
5.3 Implications for Strategic Leaders 197
CHAPTERCASE 5 / Part II 199
PART TWO / FORMULATION 206
CHAPTER 6
BUSINESS STRATEGY: DIFFERENTIATION, COST
LEADERSHIP, AND BLUE OCEANS 208
CHAPTERCASE 6 / Part I
JetBlue Airways: En Route to a New Blue Ocean? 209
6.1 Business-Level Strategy: How to Compete for
Advantage 211
Strategic Position 212
Generic Business Strategies 212
6.2 Differentiation Strategy: Understanding Value
Drivers 214
Product Features 217
Customer Service 217
Complements 217
6.3 Cost-Leadership Strategy: Understanding Cost
Drivers 218
Cost of Input Factors 220
Economies of Scale 220
Learning Curve 223
Experience Curve 227
6.4 Business-Level Strategy and the
Five Forces: Benefits and Risks 228
Differentiation Strategy: Benefits and Risks 228
Cost-Leadership Strategy: Benefits and Risks 230
6.5 Blue Ocean Strategy: Combining Differentiation
and Cost Leadership 231
Value Innovation 232
Blue Ocean Strategy Gone Bad: “Stuck in the Middle” 234
6.6 Implications for Strategic Leaders 238
CHAPTERCASE 6 / Part II 239
CHAPTER 7
BUSINESS STRATEGY: INNOVATION,
ENTREPRENEURSHIP, AND PLATFORMS 244
CHAPTERCASE 7 / Part I
Netflix: No Longer a Disruptor? 245
7.1 Competition Driven by Innovation 246
Netflix’s Continued Innovation 247
The Speed of Innovation 247
The Innovation Process 249
The Four Industrial Revolutions 251
7.2 Strategic and Social Entrepreneurship 254
7.3 Innovation and the Industry Life Cycle 257
Introduction Stage 259
Growth Stage 260
Shakeout Stage 264
Maturity Stage 265
Decline Stage 265
Crossing the Chasm 266
7.4 Types of Innovation 274
Incremental vs. Radical Innovation 274
Architectural vs. Disruptive Innovation 276
7.5 Platform Strategy 281
The Platform vs. Pipeline Business Models 281
The Platform Ecosystem 283
7.6 Implications for Strategic Leaders 286
CHAPTERCASE 7 / Part II 287
CHAPTER 8
CORPORATE STRATEGY: VERTICAL INTEGRATION
AND DIVERSIFICATION 294
CHAPTERCASE 8 / Part I
Amazon’s Corporate Strategy 295
8.1 What Is Corporate Strategy? 298
Why Firms Need to Grow 299
Three Dimensions of Corporate Strategy 300
8.2 The Boundaries of the Firm 302
Firms vs. Markets: Make or Buy? 303
The Make-or-Buy Continuum 306
8.3 Vertical Integration along the Industry Value
Chain 310
Types of Vertical Integration 312
Benefits and Risks of Vertical Integration 315
When Does Vertical Integration Make Sense? 317
Alternatives to Vertical Integration 318
8.4 Corporate Diversification:
Expanding Beyond a Single Market 319
Types of Corporate Diversification 321
Core Competencies and Corporate
Diversification 323
Corporate Diversification and Firm Performance 328
8.5 Implications for Strategic Leaders 333
CHAPTERCASE 8 / Part II 333
CHAPTER 9
CORPORATE STRATEGY: STRATEGIC ALLIANCES,
MERGERS, AND ACQUISITIONS 342
CHAPTERCASE 9 / Part I
Little Lyft Gets Big Alliance Partners and Beats Uber in
Going Public 343
9.1 How Firms Achieve Growth 345
The Build-Borrow-Buy Framework 345
9.2 Strategic Alliances 348
Why Do Firms Enter Strategic Alliances? 349
Governing Strategic Alliances 353
Alliance Management Capability 356
9.3 Mergers and Acquisitions 358
Why Do Firms Merge with Competitors? 359
Why Do Firms Acquire Other Firms? 361
M&A and Competitive Advantage 364
9.4 Implications for Strategic Leaders 366
CHAPTERCASE 9 / Part II 367
CHAPTER 10
GLOBAL STRATEGY: COMPETING AROUND
THE WORLD 374
CHAPTERCASE 10 / Part I
IKEA: The World’s Most Profitable Retailer 375
10.1 What Is Globalization? 377
Stages of Globalization 379
State of Globalization 381
10.2 Competing Globally: Why? 384
Advantages of Competing Globally 385
Disadvantages of Competing Globally 387
10.3 Competing Globally: Where and How? 391
Where in the World to Compete? The CAGE Distance
Framework 391
How Do MNEs Enter Foreign Markets? 395
10.4 Cost Reductions vs. Local Responsiveness
396
International Strategy 397
Multidomestic Strategy 398
Global-Standardization Strategy 398
Transnational Strategy 399
10.5 National Competitive Advantage: World
Leadership in Specific Industries 404
Porter’s Diamond Framework 404
10.6 Implications for Strategic Leaders 406
CHAPTERCASE 10 / Part II 407
PART THREE / IMPLEMENTATION 414
CHAPTER 11
ORGANIZATIONAL DESIGN: STRUCTURE, CULTURE,
AND CONTROL 416
CHAPTERCASE 11 / Part I
“A” Is for Alphabet and “G” Is for Google 417
11.1 Organizational Design and Competitive
Advantage 420
Organizational Inertia: The Failure
of Established Firms 421
Organizational Structure 424
Mechanistic vs. Organic Organizations 426
11.2 Strategy and Structure 428
Simple Structure 428
Functional Structure 429
Multidivisional Structure 432
Matrix Structure 436
11.3 Organizing for Innovation 440
11.4 Organizational Culture: Values, Norms, and
Artifacts 444
Where Do Organizational Cultures Come From? 447
How Does Organizational Culture Change? 448
Organizational Culture and Competitive Advantage 449
11.5 Strategic Control-and-Reward Systems 450
Input Controls 451
Output Controls 451
11.6 Implications for Strategic Leaders 452
CHAPTERCASE 11 / Part II 453
CHAPTER 12
CORPORATE GOVERNANCE, BUSINESS ETHICS, AND
BUSINESS MODELS 460
CHAPTERCASE 12 / Part I
Theranos: Bad Blood 461
12.1 Corporate Governance 463
Agency Theory 465
The Board of Directors 466
Other Governance Mechanisms 468
12.2 Strategy and Business Ethics 471
Bad Apples vs. Bad Barrels 474
12.3 Business Models: Strategy in Action 476
The Business Model Framework 476
Popular Business Models 478
Dynamic Nature of Business Models 480
Business Model Innovation 481
12.4 Implications for Strategic Leaders 486
CHAPTERCASE 12 / Part II 487
PART FOUR / MINICASES 493
HOW TO CONDUCT A CASE ANALYSIS 494
PART FIVE / FULL-LENGTH CASES
Twelve cases with auto-graded exercises are included
in Connect. All of Frank T. Rothaermel’s cases
are available through McGraw Hill Create:
www.mcgrawhillcreate.com/rothaermel
Company Index CI-1
Name Index NI-1
Subject Index SI-1