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Strategic management 3rd edition 2016 by frank rothaermel Strategic management 3rd edition 2016 by frank rothaermel Strategic management 3rd edition 2016 by frank rothaermel Strategic management 3rd edition 2016 by frank rothaermel Strategic management 3rd edition 2016 by frank rothaermel Strategic management 3rd edition 2016 by frank rothaermel
THIRD EDITION Strategic Management Frank T Rothaermel Georgia Institute of Technology STRATEGIC MANAGEMENT, THIRD EDITION Published by McGraw-Hill Education, Penn Plaza, New York, NY 10121 Copyright © 2017 by McGraw-Hill Education All rights reserved Printed in the United States of America Previous editions © 2015 and 2013 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 Education, 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 DOW/DOW ISBN 978- 1-259-42047-4 (student edition) MHID 1-259-42047-7 (student edition) ISBN 978-1-259-76065-5 (instructor’s edition) MHID 1-259-76065-0 (instructor’s edition) Senior Vice President, Products & Markets: Kurt L Strand Vice President, General Manager, Products & Markets: Michael Ryan Vice President, Content Design & Delivery: Kimberly Meriwether David Managing Director: Susan Gouijnstook Executive Brand Manager: Michael Ablassmeir Director, Product Development: Meghan Campbell Lead Product Developer: Kelly L Delso Senior Product Developer: Lai T Moy Content Product Developer: Bill Teague Director, Marketing: Robin Lucas Senior Marketing Manager: Casey Keske Lead Digital Product Analyst: Sankha Basu Director, Content Design & Delivery: Terri Schiesl Program Manager: Mary Conzachi Content Project Managers: Mary E Powers (Core), Keri Johnson (Assessment) Buyer: Susan K Culbertson Design: Matt Diamond Content Licensing Specialists: Ann Marie Jannette (Image), DeAnna Dausener (Text) Cover Image: Alexander Chernyakov/Getty Images Compositor: SPi Global Printer: R R Donnelley All credits appearing on page or at the end of the book are considered to be an extension of the copyright page Library of Congress Cataloging-in-Publication Data Names: Rothaermel, Frank T., author Title: Strategic management / Frank T Rothaermel, Georgia Institute of Technology Description: Third edition | New York, NY : McGraw-Hill Education, [2017] Identifiers: LCCN 2015043145 | ISBN 9781259420474 Subjects: LCSH: Strategic planning Classification: LCC HD30.28 R6646 2017 | DDC 658.4/012—dc23 LC record available at http://lccn.loc.gov/2015043145 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 Education, and McGraw-Hill Education does not guarantee the accuracy of the information presented at these sites www.mhhe.com DEDICATION To my eternal family for their love, support, and sacrifice: Kelleyn, Harris, Winston, Roman, Adelaide, and Avery —FRANK T ROTHAERMEL CONTENTS IN BRIEF PART ONE / PART TWO / PART THREE / ANALYSIS 2 CHAPTER What Is Strategy? CHAPTER Strategic Leadership: Managing the Strategy Process 32 CHAPTER xternal Analysis: Industry Structure, Competitive Forces, and Strategic E Groups 64 CHAPTER Internal Analysis: Resources, Capabilities, and Core Competencies 104 CHAPTER Competitive Advantage, Firm Performance, and Business Models 140 FORMULATION 172 CHAPTER Business Strategy: Differentiation, Cost Leadership, and Blue Oceans 174 CHAPTER Business Strategy: Innovation and Entrepreneurship 208 CHAPTER Corporate Strategy: Vertical Integration and Diversification 252 CHAPTER Corporate Strategy: Strategic Alliances, Mergers and Acquisitions 294 CHAPTER 10 Global Strategy: Competing Around the World 326 IMPLEMENTATION 362 CHAPTER 11 Organizational Design: Structure, Culture, and Control 364 CHAPTER 12 Corporate Governance and Business Ethics 400 PART FOUR / MINICASES 427 HOW TO CONDUCT A CASE ANALYSIS 516 PART FIVE / FULL-LENGTH CASES All available through McGraw-Hill Create, www.McGrawHillCreate.com/Rothaermel iv MINICASES AND FULL-LENGTH CASES MINICASES / FULL-LENGTH CASES / Michael Phelps: Strategy Formulation & Implementation 428 All available through McGraw-Hill Create, www.McGrawHillCreate.com/Rothaermel Teach for America: How to Inspire Future Leaders 430 Facebook, Inc. PepsiCo’s Indra Nooyi: Performance with Purpose 432 Better World Books and the Triple Bottom Line How the Strategy Process Kills Innovation at Microsoft 435 Tesla Motors, Inc. Strategy and Serendipity: A Billion-Dollar Business 438 The Movie Exhibition Industry + 10 11 12 13 When Will P&G Play to Win Again? 449 Apple: What’s Next? 440 Starbucks: Schultz Serves Up a Turnaround 443 Nike’s Core Competency: The Risky Business of Fairy Tales 446 Trimming Fat at Whole Foods Market 452 Is Porsche Killing the Golden Goose? 454 LEGO’s Turnaround: Brick by Brick 457 From Good to Great to Gone: The Rise and Fall of Circuit City 460 14 Cirque du Soleil: Searching for a New Blue Ocean 462 15 Competing on Business Models: Google vs Microsoft 465 16 Assessing Competitive Advantage: Apple vs Blackberry 469 Apple, Inc. McDonald’s Corporation Google Inc.* Best Buy Co., Inc. Delta Air Lines, Inc.* Amazon.com, Inc. Merck & Co., Inc. IBM at the Crossroads General Electric after GE Capital* Grok: Action Intelligence for Fast Data Make or Break at RIM: Launching BlackBerry 10 Genentech: After the Acquisition by Roche UPS in India—A Package Deal? Bank of America and the New Financial Landscape 17 Wikipedia: Disrupting the Encyclopedia Business 475 18 Standards Battle: Which Automotive Technology Will Win? 478 19 “A” Is for Alphabet and “G” Is for Google: Alphabet’s Siemens Energy: How to Engineer a Green Future? Infosys Consulting in the U.S.—What to Do Now? InterfaceRAISE: Raising the Bar in Sustainability Consulting Corporate Strategy and Google’s Strategy Process 480 20 21 22 23 HP’s Boardroom Drama and Divorce 484 24 25 26 27 28 LVMH in China: Cracks Its Empire of Desire? 497 Hollywood Goes Global 488 Does GM’s Future Lie in China? 492 Flipkart Is Fulfilling Its Wish and Beating Amazon.com 494 Sony vs Apple: Whatever Happened to Sony? 501 Struggling Samsung Electronics 505 Alibaba and China’s ECommerce: Reality Bites 509 UBS: A Pattern of Ethics Scandals 513 How to Conduct a Case Analysis 516 * NEW TO THE THIRD EDITION REVISED AND UPDATED FOR THE THIRD EDITION + THIRD-PARTY CASE v CHAPTERCASES & STRATEGY HIGHLIGHTS CHAPTERCASES 10 11 12 / Does Twitter Have a Strategy? Marissa Mayer: Turnaround at Yahoo? 33 Tesla Motors and the U.S Automotive Industry 65 Dr Dre’s Core Competency: Coolness Factor 105 The Quest for Competitive Advantage: Apple vs Microsoft 141 JetBlue: “Stuck in the Middle”? 175 Netflix: Disrupting the TV Industry 209 How Amazon.com Became the Everything Store 253 Disney: Building Billion-Dollar Franchises 295 The Wonder from Sweden: Is IKEA’s Success Sustainable? 327 Zappos: From Happiness to Holacracy 365 Uber: Most Ethically Challenged Tech Company? 401 STRATEGY HIGHLIGHTS 1.1 1.2 2.1 2.2 3.1 3.2 4.1 4.2 5.1 5.2 6.1 6.2 7.1 7.2 8.1 8.2 9.1 9.2 10.1 10.2 11.1 11.2 12.1 12.2 vi / Threadless: Leveraging Crowdsourcing to Design Cool T-Shirts 10 BP “Grossly Negligent” in Gulf of Mexico Disaster 20 Merck: Reconfirming Its Core Values 41 Starbucks’ CEO: “It’s Not What We Do” 51 Blackberry’s Bust 71 The Five Forces in the Airline Industry 74 Applying VRIO: The Rise and Fall of Groupon 117 Dynamic Capabilities at IBM 123 Interface: The World’s First Sustainable Company 161 Airbnb: Tapping the Value of Unused Space 162 Dr Shetty: “The Henry Ford of Heart Surgery” 189 How JCPenney Sailed Deeper into the Red Ocean 198 How Dollar Shave Club Is Disrupting Gillette 236 GE’s Innovation Mantra: Disrupt Yourself! 237 Is Coke Becoming a Monster? 263 The Tata Group: Integration at the Corporate Level 276 IBM and Apple: From Big Brother to Alliance Partner 301 Food Fight: Kraft’s Hostile Takeover of Cadbury 312 The Gulf Airlines Are Landing in the United States 334 Walmart Retreats from Germany 337 The Premature Death of a Google-like Search Engine at Microsoft 370 W.L Gore & Associates: Informality and Innovation 374 GE’s Board of Directors 411 Did Goldman Sachs and the “Fabulous Fab” Commit Securities Fraud? 416 CONTENTS PART ONE / ANALYSIS 2 CHAPTER 1 Does Twitter Have a Strategy? 5 1.1 What Strategy Is: Gaining and Sustaining Competitive Advantage 6 What Is Competitive Advantage? Industry vs Firm Effects in Determining Firm Performance 11 1.2 Stakeholders and Competitive Advantage 12 Stakeholder Strategy 14 Stakeholder Impact Analysis 15 1.3 The AFI Strategy Framework 20 1.4 Implications for the Strategist 22 CHAPTERCASE / Consider This 23 CHAPTER 2 STRATEGIC LEADERSHIP: MANAGING THE STRATEGY PROCESS 32 CHAPTERCASE 2 Marissa Mayer: Turnaround at Yahoo? 33 2.1 Vision, Mission, and Values 34 Vision 35 Mission 36 Values 36 What Do Strategic Leaders Do? 42 How Do You Become a Strategic Leader? 43 Formulating Strategy across Levels: Corporate, Business, and Functional Managers 43 2.3 The Strategic Management Process 46 Top-Down Strategic Planning 46 Scenario Planning 47 Strategy as Planned Emergence: Top-Down and Bottom-Up 49 Implications for the Strategist 53 CHAPTERCASE / Consider This 55 Tesla Motors and the U.S Automotive Industry 65 3.1 The PESTEL Framework 66 Political Factors 67 Economic Factors 68 Sociocultural Factors 69 Technological Factors 70 Ecological Factors 70 Legal Factors 72 3.2 Industry Structure and Firm Strategy: The Five Forces Model 72 Competition in the Five Forces Model 73 The Threat of Entry 75 The Power of Suppliers 79 The Power of Buyers 80 The Threat of Substitutes 81 Rivalry among Existing Competitors 82 A Sixth Force: The Strategic Role of Complements 89 3.3 Changes over Time: Industry Dynamics 89 3.4 Performance Differences within the Same Industry: Strategic Groups 90 The Strategic Group Model 91 Mobility Barriers 93 3.5 Implications for the Strategist 93 CHAPTERCASE 2.2 Strategic Leadership 40 2.4 EXTERNAL ANALYSIS: INDUSTRY STRUCTURE, COMPETITIVE FORCES, AND STRATEGIC GROUPS 64 CHAPTERCASE 3 WHAT IS STRATEGY? CHAPTERCASE 1 CHAPTER 3 / Consider This 95 CHAPTER 4 INTERNAL ANALYSIS: RESOURCES, CAPABILITIES, AND CORE COMPETENCIES 104 CHAPTERCASE 4 Dr Dre’s Core Competency: Coolness Factor 105 4.1 Core Competencies 108 4.2 The Resource-Based View 111 Two Critical Assumptions 112 The VRIO Framework 113 Isolating Mechanisms: How to Sustain a Competitive Advantage 118 vii viii CONTENTS 4.3 The Dynamic Capabilities Perspective 122 4.4 The Value Chain Analysis 127 4.5 Implications for the Strategist 129 Using SWOT Analysis to Combine External and Internal Analysis 130 CHAPTERCASE / Consider This 132 CHAPTER 5 COMPETITIVE ADVANTAGE, FIRM PERFORMANCE, AND BUSINESS MODELS 140 CHAPTERCASE 5 The Quest for Competitive Advantage: Apple vs Microsoft 141 5.1 Competitive Advantage and Firm Performance 142 Accounting Profitability 143 Shareholder Value Creation 149 Economic Value Creation 151 The Balanced Scorecard 156 The Triple Bottom Line 159 Cost of Input Factors 184 Economies of Scale 184 Learning Curve 187 Experience Curve 190 6.4 Business-Level Strategy and the Five Forces: Benefits and Risks 191 Differentiation Strategy: Benefits and Risks 192 Cost-Leadership Strategy: Benefits and Risks 192 6.5 Blue Ocean Strategy: Combining Cost Leadership and Differentiation 194 Value Innovation 194 Blue Ocean Strategy Gone Bad: “Stuck in the Middle” 197 6.6 Implications for the Strategist 200 CHAPTERCASE / Consider This 200 CHAPTER 7 BUSINESS STRATEGY: INNOVATION AND ENTREPRENEURSHIP 208 CHAPTERCASE 7 Netflix: Disrupting the TV Industry 209 5.2 Business Models: Putting Strategy into Action 160 7.1 Competition Driven by Innovation 211 5.3 7.2 Strategic and Social Entrepreneurship 215 7.3 Innovation and the Industry Life Cycle 217 Popular Business Models 163 Dynamic Nature of Business Models 164 Implications for the Strategist 165 CHAPTERCASE PART TWO / / Consider This 166 FORMULATION 172 Introduction Stage 219 Growth Stage 220 Shakeout Stage 223 Maturity Stage 224 Decline Stage 224 Crossing the Chasm 225 7.4 Types of Innovation 231 CHAPTER 6 BUSINESS STRATEGY: DIFFERENTIATION, COST LEADERSHIP, AND BLUE OCEANS 174 CHAPTERCASE 6 The Innovation Process 212 JetBlue: “Stuck in the Middle”? 175 6.1 Business-Level Strategy: How to Compete for Advantage 177 Strategic Position 178 Generic Business Strategies 178 6.2 Differentiation Strategy: Understanding Value Drivers 180 Product Features 182 Customer Service 182 Complements 182 6.3 Cost-Leadership Strategy: Understanding Cost Drivers 183 Incremental vs Radical Innovation 232 Architectural vs Disruptive Innovation 234 Open Innovation 238 7.5 Implications for the Strategist 241 CHAPTERCASE / Consider This 242 CHAPTER 8 CORPORATE STRATEGY: VERTICAL INTEGRATION AND DIVERSIFICATION 252 CHAPTERCASE 8 How Amazon.com Became the Everything Store 253 8.1 What Is Corporate Strategy? 255 Why Firms Need to Grow 255 Three Dimensions of Corporate Strategy 257 CONTENTS 8.2 The Boundaries of the Firm 258 Firms vs Markets: Make or Buy? 259 Alternatives on the Make-or-Buy Continuum 261 8.3 Vertical Integration along the Industry Value Chain 264 Types of Vertical Integration 266 Benefits and Risks of Vertical Integration 267 When Does Vertical Integration Make Sense? 269 Alternatives to Vertical Integration 270 8.4 Corporate Diversification: Expanding Beyond a Single Market 271 Types of Corporate Diversification 273 Leveraging Core Competencies for Corporate Diversification 275 Corporate Diversification and Firm Performance 279 8.5 Implications for the Strategist 282 CHAPTERCASE / Consider This 283 ix Disadvantages of Going Global 336 10.3 Going Global: Where and How? 338 Where in the World to Compete? The CAGE Distance Framework 339 How Do MNEs Enter Foreign Markets? 342 10.4 Cost Reductions vs Local Responsiveness: The Integration-Responsiveness Framework 343 International Strategy 344 Multidomestic Strategy 345 Global-Standardization Strategy 346 Transnational Strategy 347 10.5 National Competitive Advantage: World Leadership in Specific Industries 348 Porter’s Diamond Framework 350 10.6 Implications for the Strategist 352 CHAPTERCASE 10 / Consider This 353 PART THREE / IMPLEMENTATION 362 CHAPTER 9 CORPORATE STRATEGY: STRATEGIC ALLIANCES AND MERGERS AND ACQUISITIONS 294 CHAPTERCASE 9 Disney: Building Billion-Dollar Franchises 295 9.1 How Firms Achieve Growth 296 The Build-Borrow-Buy Framework 297 9.2 Strategic Alliances 299 Why Do Firms Enter Strategic Alliances? 300 Governing Strategic Alliances 304 Alliance Management Capability 307 9.3 Mergers and Acquisitions 309 Why Do Firms Merge with Competitors? 310 Why Do Firms Acquire Other Firms? 311 M&A and Competitive Advantage 313 9.3 Implications for the Strategist 315 CHAPTERCASE / Consider This 316 CHAPTER 10 GLOBAL STRATEGY: COMPETING AROUND THE WORLD 326 CHAPTERCASE 10 The Wonder from Sweden: Is IKEA’s Success Sustainable? 327 10.1 What Is Globalization? 329 Stages of Globalization 331 State of Globalization 332 10.2 Going Global: Why? 333 Advantages of Going Global 333 CHAPTER 11 ORGANIZATIONAL DESIGN: STRUCTURE, CULTURE, AND CONTROL 364 CHAPTERCASE 11 Zappos: From Happiness to Holacracy 365 11.1 Organizational Design and Competitive Advantage 367 Organizational Inertia: The Failure of Established Firms 368 Organizational Structure 371 Mechanistic vs Organic Organizations 372 11.2 Strategy and Structure 374 Simple Structure 375 Functional Structure 375 Multidivisional Structure 377 Matrix Structure 381 11.3 Organizational Culture: Values, Norms, and Artifacts 384 Where Do Organizational Cultures Come From? 386 How Does Organizational Culture Change? 386 Organizational Culture and Competitive Advantage 387 11.4 Strategic Control-and-Reward Systems 389 Input Controls 390 Output Controls 390 11.5 Implications for the Strategist 391 CHAPTERCASE / Consider This 392 I-10 SUBJECT INDEX Case studies—Cont GM and China, C492–C493 Google vs Microsoft, C465–C468 Hewlett Packard (HP), C484–C487 IKEA, C327–C329, 328–329, C353 JetBlue, C175–C176, C200 LEGO, C457–C459 Louis Vuitton in China, C497–C500 Netflix, C209–C210, C242 Nike, C446–C448 PepsiCo, C432–C434 Phelps, Michael, C428–C429 Porsche, C454–C456 Procter & Gamble (P&G), C449–C450 purpose of, 516 Samsung, C505–C507 Sony vs Apple, C501–C504 standards battle, C478–C479 Starbucks, C443–C445 Teach for America, C430–C431 Twitter, C5–C6, C23 Uber, C401–C402, C419 UBS ethics scandals, C513–C515 Whole Foods, C452–C453 Wikipedia, C475–C476 Yahoo, C33–C34, C55–C56 Zappos, C365–C366, 366–367, C392 Cash cows (SBUs), 281 Causal ambiguity, 120, 389 Caveat emptor, 261 Celeron chip, 237 Centralization, 372 CEO/chairperson duality, 411, 425n29 China, 101n 32, 333, 335, 341 Alibaba Group and, C509–C511 automotive market case study, C492–C493 LVMH in, C497–C500 movie industry, C488, C490 Class discussions, of case analysis, 519 Closed innovation, 240, 244 Cloud-based office software, C436 Codes of conduct, 415, 417 Coherent actions, 7–8 Combination business model, 164 Command-and-control decisions, 260 Communities of learning, 335 Communities of practice, 382 Community of knowledge, 260 Compensation, executive, 412 Competition competitive intensity in a focal industry, 351 exit barriers and, 87–88 in five forces model, 73–75 Google vs Microsoft case study, C465–C468 industry competitive structures, 84 industry growth and, 86 innovation and, 211–212 monopolistic, 84 monopoly, 85–86 multipoint, C467 oligopoly, 84–85, 101n29 perfect competition, 83–84 price competition, 78 rivalry among existing competitors, 82–89, 91–92, 191 Competitive advantage, 6–12, 24, 133, 140–167 accountability profitability, 143–148 Apple vs BlackBerry case study, C469–C472 Apple vs Microsoft case study, C141–C142, C167 balanced scorecard, 156–159 business-level strategy, 177–180 business models, 161–166 as determined by industry and firm effects, 177–178 economic value creation, 151–156 generic business strategies, 178–180 implications for the strategist, 165–166 isolating mechanisms and, 118–122 measuring and assessing, 166, 167 mergers and acquisitions and, 313–315, 317–318 multidimensional perspective for assessing, 142 nature of strategy and, 6–12 organizational culture and, 387–389 relational view of, 300 shareholder value creation, 149–151, 167 stakeholders and, 12–20 strategic position, 178, 179 sustainable, triple bottom line, 159–161 Competitive challenge, C440–C441 Competitive disadvantage, 8, 24 Competitive industry structure, 83 Competitive parity, 8, 24 Complementor, 89, 351–352 Complements, 89, 96, 101n24, 181–182 Conglomerate, 274 Consolidated industry, 83 Consolidate strategy, 224 Consumer surplus, 153 Contract enforcement, 261 Co-opetition, 89, 303, 381 Coordination costs, 282 Copyright infringement, C490 Core competence-market matrix, 277, 285 Core competencies, 106–111, 132, 157, 257 leveraging for corporate diversification, 275, 277–278 Core competency Circuit City case study, C460–C461 Nike case study, C446–C448 Starbucks case study, C443–C445 Core rigidity, 387 Core values, 56 Core values statement, 36, 37 Corporate citizenship, 19 Corporate culture (Hewlett Packard case study), C484–C487 Corporate diversification, 255, 271–284, 379 Amazon.com case study, C253–C255, C283–C284 definition of, 272 dominant business, 379, 380 firm performance and, 279–282 geographic diversification strategy, 272 implications for the strategist, 282–283 leveraging core competencies for, 275, 277–278 product diversification strategy, 272 product-market diversification strategy, 272 related diversification, 379, 380 restructuring and, 280–281 single business, 379, 380 types of, 273–276, 285 unrelated diversification, 379, 380 Corporate governance, 407–414 agency theory, 408–409 board of directors, 409–412 definition of, 407 implications for the strategist, 418 Corporate raiders, 413 Corporate social responsibility (CSR), 18, 338, 404–405 global survey of attitudes toward, 404–405 Corporate strategy, 44, 241, 255–259, 284 Alphabet case study, C480–C483 boundaries of the firm, 258–264 case analysis of, 517 dimensions of, 257–258, 284 Disney case study, C295–C296, C316 diversification (See Diversification) SUBJECT INDEX Google case study, C480–C483 implications for the strategist, 282–283 matching, to structure, 380 multidivisional structure and, 379–380 need for growth, 255–256 related diversification, 273–274, 280 unrelated diversification, 274, 275, 280 vertical integration (See Vertical integration) Corporate venture capital (CVC), 306 Cost drivers, 184, 201 Cost leader, 183 Cost-leadership strategy, 176, 183–191, 201, 222, 376, 378 See also Blue ocean strategy benefits and risks, 191, 192–193 cost of input factors, 184 definition of, 178 economies of scale, 183–187 experience curve, 190 focused, 179 JetBlue case study, C175–C176, C200 learning curve, 187–190 process innovation, 189, 190 Costly-to-imitate resource, 114–115 Cost of capital, 143 Cost of goods sold (COGS), C471, C472 Cost parity, 180 Cost reductions, diversification and, 280 Cost reductions in global-standardization strategy, 343 Credible commitment, 264 Credible threat of retaliation, 78–79 Cross-elasticity of demand, 101n24 Cross-functional teams, 377, 382 Crossing-the-chasm framework, 225–231, 244 definition of, 225–226 early adopters, 227 early majority, 227–228 laggards, 228, 229 late majority, 228 mobile phone industry application, 229–230 technology enthusiasts, 226–227 Cube-square rule, 186 Cultural distance, 340–341, 360n58 Cumulative learning and experience, 78 Currency exchange rates, 69 Customer-oriented vision statements, 38–39, 56 companies with, 38 moving from product-oriented to, 39–40 Customer perspective, 157 Customer service, 182 D Death-of-distance hypothesis, 348 Decline stage, of industry life cycle, 224–225, 231 Dedicated alliance function, 308 Deflation, 69 Demand conditions, 351 Demographic trends, 70 Deregulation, 78 Diagnosis, of competitive challenge, Differentiation parity, 183 Differentiation strategy, 176, 180–182, 201, 222, 376, 378 See also Blue ocean strategy benefits and risks, 191 complements, 181–182 customer service, 182 definition of, 178 focused, 179 JetBlue case study, C175–C176, C200 Procter & Gamble case study, C449–C450 product features, 182 Sony case study, C501–C504 Whole Foods case study, C452–C453 Digital monopoly, 86 Direct imitation (of resource), 115, 116 Diseconomies of scale, 187 Disruption business model, 164 Wikipedia case study, C475–C476 Disruptive innovation, 234–238 examples of, 235–237 responding to, 237 Distribution agreements, 304 Diversification See Corporate diversification Diversification discount, 279 Diversification premium, 279 Division of labor, 371 Dogs (SBUs), 281 Dominant business diversification, 379, 380 Dominant business firm, 273, 275 Dominant strategic plan, 49 Duopoly, 101n29 Dynamic capabilities, 122, 133 Dynamic capabilities perspective, 107, 122–127 definition of, 126 at IBM, 123–125 I-11 E Early adopters, 227 Early majority, 227–228 Ecological factors, in PESTEL model, 70–72 Ecomagination, 406 Ecommerce See specific companies Economic arbitrage, 342 Economic contribution, Economic factors, in PESTEL model, 68–69 Economic responsibilities, in CSR, 18, 19 Economic value, 73, 142 Economic value creation, 151–156, 167, 194, 387 Economies of experience, 342 Economies of scale, 76, 181, 183–187, 256, 257, 280, 334–335, 342, C472 certain physical properties and, 186 specialized systems/equipment, 186 spreading fixed costs over larger output, 185–186 Economies of scope, 257, 280, 334–335, 342 Economies of standardization, 342 EDGAR database, 414 Efficient-market hypothesis, 149 Emergent strategy, 49–51, 54 Employment levels, 68 Enterprise resource planning (ERP), 186 Entrepreneurs, 215–216 Entrepreneurship, 215–217, 247 definition of, 215 strategic, 216–217 Entry barriers, 74, 76 Environmental sustainability, 159 Equity alliances, 263, 305–306 Ethical responsibilities, in CSR, 18, 19 Ethics See Business ethics Euro, 359n51 European Union, 333 Evolution business model, 164 Executive compensation, 412, 420 Exit barriers, 87, 89 Exit strategy, 224 Experience curve, 190 Experience-curve effect, 190 Explicit knowledge, 304 Exploitation, 377 Exploration, 377 Exporting, 343 Express-delivery industry, 85 I-12 SUBJECT INDEX External analysis, 64–95 case study: Tesla Motors, C55–C56, C95 five forces model (See Five forces model) implications for the strategist, 93–95 industry dynamics, 89–90 PESTEL model (See PESTEL model) strategic groups, 90–93 SWOT analysis and, 130–132 External environment, 66, 67, 96 External environmental analysis, 517 External stakeholders, 14 External transaction costs, 258 F Factor conditions, 350 FASB (Financial Accounting Standards Board), 143 Fiduciary responsibility, 410, 416 Financial Accounting Standards Board (FASB), 143 Financial ratios, calculating, 517–518 Firm effects, 11–12, 24, 177 Firms vs markets, 259–261 First-mover advantages, 214 First-mover disadvantages, 219 Five forces model, 72–89, 94, 96, 101n26, 101n32, 201, 310 in airline industry, 74, 79–80, 87 business-level strategy and, 191–193 competition in, 73–75 competitive analysis checklist, 88 definition of, 73 power of buyers, 80–81 power of suppliers, 79–80 rivalry among competitors, 82–89 strategic role of complements and, 89 threat of entry, 75–79, 101n26 threat of substitutes, 81–82 Fixed asset turnover, 146, C471 Fixed costs, 155 Focal industry, competitive intensity in, 351 Focused cost-leadership strategy, 179 Focused differentiation strategy, 179 Foreign Account Tax Compliance Act (FATCA), C514 Foreign direct investment (FDI), 330, 354 Formalization, 371–372 Forward vertical integration, 267 Founder imprinting, 386 Fragmented industry, 83 Franchising, 262, C295–C296 Freemium business model, 164 Functional manager, 45 Functional strategy, 44 Functional structure, 375–377 business strategy and, 376–377 disadvantages of, 377 G GAAP (generally accepted accounting principles), 143, 414, 425n35 Game theory, 85 Gender diversity, in Fortune 1000, 425n28 General environment, of firm, 66, 67 Generally accepted accounting principles (GAAP), 143, 414, 425n35 Generic business strategies, 178–180 See also Cost-leadership strategy; Differentiation strategy Geographic diversification strategy, 272 Germany, 330, 341 Globalization, 356 See also Global strategy advantages of, 333–336, 354 automotive market and, C492–C493 deciding where and how, 338–343 definition and nature of, 329–330 disadvantages of, 333–338, 354 LEGO and, C457–C459 movie industry case study, C488–C490 stages, 331–332 state of, 332–333 strategic alliances and, 299, 300, 343 Global standardization, 358n12, 383 Global-standardization strategy, 346–348 Global strategy, 326–355 See also Globalization CAGE distance framework, 339–342 definition of, 330, 358n12 IKEA case study, C327–C329, C353 implications for the strategist, 352 integration-responsiveness framework, 343–348 matching, to structure, 383 matrix structure and, 382–383 national competitive advantage, 348–352 Governance, 307, 317, 420 Government policy, 78 Government regulators, 414 Greenfield operations, 303, 343 Groupthink, 386 Growth, 284 achieving, 296–299 build-borrow-or-buy framework, 297–299 strategic alliances, 299–309 Growth rate, 68 Growth stage, of industry life cycle, 220–223, 231 Guiding policy, 7–8 H Harvest strategy, 224 Health care costs, process innovation and, 189 Hedge funds, 413 Herding effect, 227 Hierarchy, 372 Holacracy, 365–367 Hong Kong, 330 Horizontal integration, 310, 317 Hostile takeover, 413 Human-asset specificity, 268 I Illusion of control, 49 Implementation plan, 518–519 Incomplete contracting, 261 Incremental innovation, 232–234 India, 100, 330, 331, 335 Individualism (dimension of national culture), 340, 359n55 Inductive reasoning, 520 Indulgence (dimension of national culture), 340 Industry, 72 Industry analysis, 72 Industry analysts, 414 Industry consolidation, 310 Industry convergence, 90 Industry dynamics, 89–90 Industry effects, 11–12, 177 Industry growth, 86 Industry life cycle, 217–231, 243 decline stage, 224–225, 231 features/strategic implications of, 231 growth stage, 220–223, 231 introduction stage, 214, 219–220, 222, 231 maturity stage, 222, 224, 231 shakeout stage, 223, 231 SUBJECT INDEX smartphone industry and, 218 transitions (crossing the chasm), 225–231 Industry value chain, 265, 266 Inertia, 368–371 Inflation, 69 Influence costs, 282 Information asymmetry, 261, 285, 407–409 Innovation, 210–215 architectural vs disruptive, 234–238 commercialism of an invention, 214 competition driven, 211–212 imitation and, 214 implications for the strategist, 241 incremental vs radical, 232–234 industry life cycle and (See Industry life cycle) Microsoft case study, C435–C437 Netflix case study, C209–C210, C242 open, 238–241 process, 212–215, 243 reverse innovation, 238 types of, 231–240, 244 users and, 210, 250n78 Innovation ecosystem, 234 Input controls, 390 Input factors, 184 Inside directors, 410 Insider information, 407 Institutional arrangements, 258 Intangible assets stock market evaluation and, 148 value of firms and, 148 Intangible resources, 111, 126–127, 133, 192 Integration-responsiveness framework, 343–348, 354 global-standardization strategy, 346–347, 349 international strategy, 344–345, 349 multidomestic strategy, 345–347, 349, 352, 383 transnational strategy, 347–348, 383 Intellectual property (IP) patents, 213 protection, 121–122 Intended strategy, 50–51 Interest-bearing debt, C71, 143 Interest rates, 68–69 Interfirm trust, 308 Internal analysis, 104–132 core competencies, 107, 108–111 dynamic capabilities perspective, 107, 122–127 implications for the strategist, 129–132 resource-based view (See Resourcebased view) SWOT analysis and, 107, 130–132 value chain analysis, 107, 127–129 Internal capital markets, 281–282 Internal stakeholders, 14 Internal transaction costs, 258 International strategy, 326, 342–343 Interorganizational trust, 307 Introduction stage, of industry life cycle, 214, 219–220, 222, 231 Invention, 213 Inventory turnover, 146, C471, C472 Ireland, 339 ISO 9000, 121 Isolating mechanisms, 118–122 causal ambiguity, 120 expectations of future resource value, 118–119 intellectual property (IP) protection, 121–122 path dependence, 119–120 social complexity, 121 J Japan, 330 Joint ventures, 264, 306 Just-in-time (JIT) operations management, 221 K Kenya, 331 L Laggards, 225, 228–229 Large cap, 171n13 Late majority, 228 Law, as minimum acceptable standard, 415 Learning curve, 187–190, 206n27 Learning races, 303 Legal factors, in PESTEL model, 72 Legal responsibilities, in CSR, 18 Lemons problem, 261 Level-5 leadership pyramid, 43, 44 Leveraged buyout (LBO), 413 Leverage ratios, 518 Liability of foreignness, 336 LIBOR (London Interbank Offered Rate), C514–C515 Licensing, 262 Licensing agreements, 304 Liquidity ratios, 518 I-13 Local responsiveness, 344 Location economies, 336 Location of business, as advantage, 78 Long tail business model, 210, 248n3 Long-term contracts, 262 Long-term orientation (dimension of national culture), 340 Low-cost leader, 193 M Maintain strategy, 224 Make or buy alternatives, 261–264 firms vs markets, 259–261 Managerial hubris, 314 Market capitalization, 149, 171n13 Market for corporate control, 412–413 Market power, 256 Market ratios, 518 Markets-and-technology framework, 232, 244 Masculinity-femininity (dimension of national culture), 340, 360n55 Matrix structure, 381–384 disadvantages, 383–384 global strategy and, 382–383 SBUs in, 381–382 Maturity stage, of industry life cycle, 222, 224, 231 MBA oath, 417–418 Mechanistic organizations, 372–373, 376, 393 Media industry, 90 Mergers and acquisitions (M&A), 309–315, 317, 324n56 competitive advantage and, 313–315, 317–318 implications for the strategist, 315–316 Kraft Foods hostile takeover of Cadbury, 312 purpose of acquisitions, 311–313 purpose of mergers, 310–311 Mexico, 339, 341 Microcredit, 406 Mid cap, 171n13 Minimum acceptable standard, 415 Minimum efficient scale (MES), 186 Mission, 34, 36, 37 Mobile phone industry, 229–230 Mobility barriers, 93 Monopolies, 85–86 Monopolistic competition, 84 Moral hazard, 409 Movie industry, C488–C490 I-14 SUBJECT INDEX Multidivisional structure (M-form), 377–381 corporate strategy and, 379–380 Multidomestic strategy, 345–346, 349, 352, 354, 383 Multinational enterprises (MNEs), 330, 354, 383 modes of foreign market entry, 342–343 Multipoint competition, C467 N NAFTA, 339, 341 National competitive advantage, 348–352 Porter’s Diamond framework, 350–352 National culture, 340 Native advertising, 46 Natural monopolies, 85 Natural resources, 350 Near monopolies, 85–86 Net operating profit after taxes (NOPAT), 171n5 Network effects, 76–77, 221, C465 Network structure, 382 NGOs (nongovernmental organizations), 406 Non-equity alliances, 304–305 Nongovernmental organizations (NGOs), 406 Non-price competition, 85 Not-invented-here syndrome, 239, 246 O Obamacare, 18 Offshoring (offshore outsourcing), 271 Oligopoly, 84–85, 101n29 Online retailing, 50 Online search engines, C435–C437 On-the-job consumption, 408 Open innovation, 238–241, 244 and closed innovation compared, 240 example of, 240 Opportunism, 261, 268 Opportunities, diagnosing, 518 Opportunity costs, 155 Organic organizations, 373–374, 376, 393 Organizational core values, 40 Organizational culture, 384–390, 393 change in, 386–387 competitive advantage and, 387–389 employee behavior and, 388 origins of, 386 Organizational design, 364–392 competitive advantage and, 367 implications for the strategist, 391 mechanistic vs organic organizations, 372–374 organizational culture, 384–389 organizational inertia, 368–371 organizational structure, 371–372 strategic control-and-reward systems, 389–391 strategy and structure, 374–384 traditional vs holacracy, 366 Zappos case study, C365–C367, 368, C392 Organizational inertia, 234, 392 Organizational structure, 371–372, 393 Organized to capture value, 116 Output controls, 390–391 Outside directors, 410 Outsourcing, 100, 271 P Parent-subsidiary relationship, 264 Partner commitment, 307 Partner compatability, 307 Patents, 78, 213 Path dependence, 119 Patient Protection and Affordable Care Act (PPACA), 18 Payables turnover, C44, 147, C471 Pay as you go business model, 164 Perfect competition, 83–84, 113 Performance, case analysis of, 517 Performance with Purpose (PepsiCo), C432–C434 PESTEL model, 66–72, 96, 101n32, 107, 230 ecological factors, 70–72 economic factors, 68–69 legal factors, 72 political factors, 67–68 sociocultural factors, 69–70 technological factors, 70 Philanthropic responsibilities, in CSR, 19 Physical-asset specificity, 268 Planned emergence, 53, 57, C482 Platform as a service (PaaS), 278 Point-to-point business model, 175 Poison pill, 413–414 Political distance, 341–342 Political factors, in PESTEL model, 67–68 Polycentric innovation strategy, 336 Portable music players, C436 Porter’s Diamond framework, 350–352, 355 competitive intensity in focal industry, 349 demand conditions, 351 related and supporting industries and complementors, 351–352 Portugal, 339 Positive-sum co-opetition, 96, 101n35 Power distance (dimension of national culture), 340, 359n55 Preferential access to materials and distribution channels, 77, 78 Price stability, 69 Primary activities, 128–129 Principal-agent problem, 256, 260, 285, 313–314, 407–409, 418 Private companies, 413 Private equity firms, 413 Private information, 407 Problems, diagnosing, 518 Process innovation, 190 Process innovations, 189, 221–222 Producer surplus, 153 Product diversification strategy, 272 Product features, 182 Product innovations, 221–222 Product-market diversification strategy, 272 Product-oriented vision statements, 38, 56 moving to customer-oriented from, 39–40 Profit, 153, 256 Profit ratios, 518 Proprietary technology, 77, 78 Public stock companies, 403–404 auditors, government regulators, and industry analysts, 414 board of directors, 409–412 characteristics of, 404 executive compensation, 412 leveraged buyouts and, 413 market for corporate control, 412–413 other governance mechanisms, 412–414 Public utilities, 85 Q Qualitative performance dimensions, 166 Quantitative performance dimensions, 166 Question marks (SBUs), 281 R Radical innovation, 232–234 Rare resource, 114 Razor-razorblade business model, 163, 214 SUBJECT INDEX Real growth rate, 68 Realized strategy, 50–51 Real options perspective, 302 Receivables turnover, 147, C471, C472 Red oceans, 194 Regional clusters, 406 Related-constrained diversification strategy, 274, 275 Related diversification, 286, 379, 380 Related diversification strategy, 273 Related-linked diversification strategy, 274, 275, 296 Relational view of competitive advantage, 300 Reputation, loss of, 336–337 Requests for proposals (RFPs), 261 Research & development, C471 Reservation price, 151–154, 156, 157 Resource-allocation process (RAP), 52–53 Resource-based view, 107, 111–122, 133 critical assumptions, 112–113 isolating mechanisms, 118–122 VRIO framework, 113–118 Resource flows, 126 Resource gap, 297–299 Resource heterogeneity, 112 Resource immobility, 112 Resources, 108, 132 See also Resourcebased view intangible, 111 isolating mechanisms for competitive advantage, 118–122 tangible, 111 VRIO framework, 113–118 Resource stocks, 126 Response to disruption business model, 165 Restructuring, 280–281 Results-only work environments (ROWEs), 391 Retaliation, credible threat of, 78–79 Return on assets (ROA), 143 Return on equity (ROE), 143 Return on invested capital (ROIC), 143, 145, C468 Return on revenue (ROR), 143, C471 Reverse innovation, 238, 358n17 Risk capital, 149 Risk reduction, 256 Rivalry, nature of, 74, 96 ROA (return on assets), 143 ROE (return on equity), 143 ROIC (return on invested capital), 143, 145 ROR (return on revenue), 143 Russia, 330 S Sarbanes-Oxley Act (2002), 143 Scale economies, 187 Scenario planning, 47–49, 54, 57 Scope of competition, 178–179 Search costs, 260 SEC (Securities and Exchange Commission), 143 Securities and Exchange Commission (SEC), 143 Selling, general & administrative, C471 Serendipity, 52 70-20-10 rule, C482 SG&A/Revenue, 146 Shakeout stage, of industry life cycle, 223, 231 Shared value creation framework, 403–406, 420 creating shared value, 405–406 definition of, 405 public stock companies, 403–404 shareholder capitalism, 404–405 Shareholder capitalism, 404–405 Shareholder perspective, 158 Shareholders, 149 Shareholders equity, C469 Shareholder’s equity, 143 Shareholder value creation, 142, 148, 149–151, 156 Short-term contracts, 261–262, 290n18 Simple structure, 375 Singapore, 330 Single business diversification, 379, 380 Single business firm, 273, 275 Site specificity, 268 Six Sigma, 121 Size, advantages indendent of, 77–78 Small cap, 171n13 Smartphone industry, 218, 219, 266, 361n81 Smartphone market, 229–230 Social complexity, 121, 138n31, 389 Social entrepreneurship, 217, 256 Socialization, 384 Social market economies, 405 Sociocultural factors, in PESTEL model, 69–70 Soft drink industry, C432–C434 Software as a service (SaaS), 278 Solutions, proposing, 518 South Korea, 330 Span of control, 372 Specialization, 371 Specialized assets, 268 Stage model, 343 I-15 Stakeholder impact analysis, 15–20, 24 addressing stakeholder concerns, 19 definition of, 15 identifying opportunities and threats, 17 identifying social responsibilities, 18 identifying stakeholder interests, 16–17 identifying stakeholders, 16 Stakeholders attributes of, 15–16 competitive advantage and, 12–20 definition of, 13 stakeholder strategy, 13–15 Stakeholder strategy, 13–15, 24, 29n26, 405 Stakeholder theory, 406 See also Stakeholder strategy Standard, 220 Standard operating procedures, 390 Stars (SBUs), 281 Stock market evaluation, intangible assets and, 148 Stock options, 412 Strategic alliances, 262–264, 299–309, 317 accessing critical complementary assets, 303 alliance management capability, 307–309, 317 entry to new markets, 300, 302 globalization and, 299 governing, 304–306 hedging against uncertainty, 302–303 IBM and Apple as, 301 implications for the strategist, 315–316 learning new capabilities, 303–304 long-term contracts, 262 post-formation management of, 308–309 reasons for, 300–302 strengthen competitive position, 302 trust and, 308 Strategic business units (SBUs), 45, 156 in matrix structure, 381–382 in multidivisional structure, 377–378, 381 Strategic commitments, 36, 87 Strategic control-and-reward systems, 389–391, 393 input controls, 390 output controls, 390–391 Strategic entrepreneurship, 216–217 Strategic equivalence, 115 Strategic groups, 90–93, 97 mobility barriers, 93 I-16 SUBJECT INDEX Strategic groups—Cont strategic group map, 94 strategic group model, 90, 91–93 Strategic initiative, 51, 53 Strategic leadership, 56–57 characteristics of strategic leaders, 42–43 definition, 34 ethics and, 43 formulating strategy across levels, 43–46 management path to, 40–46 mission, 34, 36, 37 top-down and bottom-up, 46–47, 49–53 values, 36–40 vision, 34–37 Yahoo case study, C33–C34, C55–C56 Strategic management, 6, 243 competitive advantage as defining goal, 142 emergent strategy, 49–53 process, 46–53 realized strategy, 50 scenario planning, 47–49 top-down strategic planning, 46–47, 50 transaction cost economics, 258 Strategic management process, 34, 56 Strategic outsourcing, 271 Strategic position, 73, 179 Strategic positioning, Strategic trade-offs, 178 Strategists, 22–23 Strategy, 4–28 See also specific strategies AFI framework for (See AFI strategy framework) at business level (See Business-level strategies) competitive advantage and, 6–12 at corporate level (See Corporate strategy) definition, disappointing growth (case study), 5–6 elements of, 6–8, C440 growing a user base (case study), 5–7 implications for strategist, 53–54 implications for the strategist, 22–23 industry vs firm effects, 11–12 literature, 205n10 scenario planning, 47–49 stakeholders and, 12–20 Twitter case study, C5–C6, C23 Strategy and Structure (Chandler), 368 Strategy canvas, 198 Strategy formulation, 43–46, 57, 176, 391 Phelps case study, C428–C429 Strategy implementation, 44–45, 57, 159, 367–368, 391 Phelps case study, C429 Structure-Conduct-Performance (SCP) model, 101n26 Subscription business model, 163–164 Substitution (of resource), 115–116 Supplier power, 74, 79–80, 191 Supply agreements, 304 Support activities, 128, 129 Surge-pricing payment model, 389, 402, 419 Sustainable competitive advantage, 8, 24 Sustainable strategy, 160 Switching costs, 77, 81, 82 SWOT analysis, 107, 130–133 T Tablet computers, C436 Tacit knowledge, 305 Taiwan, 330 Tangible resources, 111, 133 Taper integration, 270–271 Task environment, of firm, 66 Tax evasion, C513–C515 Technological factors, in PESTEL model, 70 Technology enthusiasts, 226–227, 249n46 Textile industry, 338 Thailand, 345 Threat of entry, 75–79, 191 Threat of substitutes, 81–82, 92, 191 Top-down strategic planning, 46–47, 54, 57 Total invested capital, 143, C469 Total perceived consumer benefits, 151–155 Total return to shareholders, 149 Trade secrets, 78, 213 Transaction cost economics, 258, 284, 290n9 firms vs markets, 259–261 Transaction costs, 257, 258 Transaction-specific investments, 260 Transnational strategy, 347–348, 383 global matrix structure and, 382, 383 Travel industry, 82 See also Airline industry Treatment plan, proposing, 518 Triple-bottom-line, 159–161, 167–168, 217 U Uncertainty avoidance (dimension of national culture), 340, 360n55 Unicorns, 403 Unrelated diversification, 286, 379, 380 Unrelated diversification strategy, 274, 275, 280 Upper-echelons theory, 43 V Valuable resource, 114 Value, 153 Value chain analysis, 107, 127–129, 133 primary activities, 128 support activities, 128, 129 Value creation, 157 Value curve, 198 Value drivers, 181, 201 Value innovation, 194–197 create, 196–197 eliminate, 195 raise, 196 reduce, 195–196 Values, 34, 36–40 organizational core values, 40 Variable costs, 155 Vertical integration, 255, 259, 264–271, 280, 284, 285 alternatives to, 270–271 benefits of, 267–269, 285 definition of, 264 risks of, 269, 285 types of, 266–267 Vertically disintegrated firms, 266 Vertical market failure, 270 Vertical value chains, 265 Vision/vision statements, 34, 35–37, 56 customer-oriented, 38–39 Merck’s reconfirmation of core values in, 41 product-oriented, 38 VRIO framework, 113–118, 133, 388, 389 applying (Groupon), 117–118 costly-to-imitate resource, 114–115 definition of, 113 organized to capture value, 116, 118 rare resource, 114 valuable resource, 114 W Wholesale business model, 164 Winner’s curse, 414 Winner-take-all markets, 235 Working capital turnover, 145, 146, C471 FINANCIAL RATIOS USED IN CASE ANALYSIS Formula Profitability Ratios: “How profitable is the company?” Gross Margin (or EBITDA, EBIT, etc.) (Sales – COGS) / Sales Return on Assets (ROA) Net Income / Total Assets Return on Equity (ROE) Net Income / Total Stockholders’ Equity Return on Invested Capital (ROIC) Net Operating Profit After Taxes / (Total Stockholders’ Equity + Total Debt – Value of Preferred Stock) Return on Revenue (ROR) Net Profits / Revenue Dividend Payout Common Dividends / Net Income Activity Ratios: “How efficient are the operations of the company?” Inventory Turnover COGS / Inventory Receivables Turnover Revenue / Accounts Receivable Payables Turnover Revenue / Accounts Payable Working Capital Turnover Revenue / Working Capital Fixed Asset Turnover Revenue / Fixed Assets Total Asset Turnover Revenue / Total Assets Cash Turnover Revenue / Cash (which usually includes marketable securities) Leverage Ratios: “How effectively is the company financed in terms of debt and equity?” Debt to Equity Total Liabilities / Total Stockholders’ Equity Financial Leverage Index Return on Equity / Return on Assets Debt Ratio Total Liabilities / Total Assets Interest Coverage (Times Interest Earned) (Net Income + Interest Expense + Tax Expense) / Interest Expense Long-Term Debt to Equity Long-Term Liabilities / Total Stockholders’ Equity Debt to Market Equity Total Liabilities at Book Value / Total Equity at Market Value Bonded Debt to Equity Bonded Debt / Stockholders’ Equity Debt to tangible net worth Total Liabilities / (Common Equity – Intangible Assets) Liquidity Ratios: “How capable is the company of meeting its short-term obligations?” Current Current Assets / Current Liabilities Quick (Acid-Test) (Cash + Marketable Securities + Net Receivables) / Current Liabilities Cash (Cash + Marketable Securities) / Current Liabilities Operating Cash Flow Cash Flow from Operations / Current Liabilities Cash to Current Assets (Cash + Marketable Securities) / Current Assets Cash Position Cash / Total Assets Current Liability Position Current Liabilities / Total Assets Market Ratios: “How does the company’s performance compare to other companies?” Book Value per Share Total Stockholders’ Equity / Number of Shares Outstanding Earnings-Based Growth Models P = kE / (r – g), where E = Earnings, k = Dividend Payout Rate, r = Discount Rate, and g = Earnings Growth Rate Market-to-Book (Stock Price × Number of Shares Outstanding) / Total Stockholders’ Equity Price-Earnings (PE) Ratio Stock Price / EPS Price-Earnings Growth (PEG) Ratio PE / Earnings Growth Rate Sales-to-Market Value Sales / (Stock Price × Number of Shares Outstanding) Dividend Yield Dividends per Share / Stock Price Total Return to Shareholders Stock Price Appreciation + Dividends ...THIRD EDITION Strategic Management Frank T Rothaermel Georgia Institute of Technology STRATEGIC MANAGEMENT, THIRD EDITION Published by McGraw-Hill Education, Penn Plaza,... Cataloging-in-Publication Data Names: Rothaermel, Frank T., author Title: Strategic management / Frank T Rothaermel, Georgia Institute of Technology Description: Third edition | New York, NY : McGraw-Hill... launched (in 2012), Frank s Strategic Management textbook received the McGraw-Hill 1st Edition of the Year Award in Business & Economics Frank holds a PhD degree in strategic management from the