EXPLORING STRATEGY E XPLORING ELEVENTH EDITION STRATEGY ‘Exploring Strategy has had a world-wide impact as a text in strategic management and unusually has achieved this notable position with the very best of European scholarship and writing. The approach to strategy is inclusive; the writing is direct and accessible; the case examples are vivid and contemporary; and the material in the book is E always being updated.’ X Andrew Pettigrew, Emeritus Professor of Strategy and Organisation, Saïd Business School, University of Oxford P ‘Exploring Strategy stands out as an excellent textbook on strategic management that covers all the basics yet, unlike other texts, adds onto this a coverage of strategy process and the practice of strategy. This coverage of both L analytical and managerial aspects of strategy makes it a highly relevant text for both undergraduate and MBA EELLEEVVEENNTTHH EEDDIITTIIOONN O students. A welcome inclusion to this edition is the feature “Thinking Differently” which is about cutting-edge theory related to each chapter of the book.’ R Julia Balogun, Professor of Strategic Management and Director of University of Liverpool Management School I N ‘The book provides a very well-structured, comprehensive, and clear overview of the art of strategic management, using many up-to-date real-world case studies from renowned companies and providing useful online resources G GGEERRRRYY JJOOHHNNSSOONN for teachers. As such, the book is engaging, accessible and certainly one of the most “classroom ready” texts on strategy. It is a must-have for students, scholars, and practitioners.’ S RRIICCHHAARRDD WWHHIITTTTIINNGGTTOONN Dr Florian Kapmeier, Professor for Strategy and International Project Management, Reutlingen University, ESB Business T School KKEEVVAANN SSCCHHOOLLEESS R ‘When teaching and learning with this book, strategy comes alive! Exploring Strategy addresses the fascinating A DDUUNNCCAANN AANNGGWWIINN issues of “strategy in action”. As strategic change is everywhere nowadays, this textbook provides unique and invaluable insights for the men and women who are daily involved in the processes and practice of strategizing.’ T Linda Rouleau, Professor of Management, HEC Montréal PPAATTRRIICCKK RREEGGNNÉÉRR E G Y With over one million copies sold worldwide, Exploring Strategy has long been the essential introduction to strategy for the managers of today and tomorrow. From entrepreneurial start- ups to multinationals, charities to government agencies, this book raises the big questions about ELEVENTH organisations – how they prosper, how they grow, how they innovate and how they change. EDITION The eleventh edition of Exploring Strategy has been comprehensively updated to help you: SJO C (cid:127) Understand clearly the key concepts and tools of strategic management HH N O (cid:127) Explore hot topics, including business models, corporate governance, innovation and LS EO entrepreneurship SN (cid:127) Learn from case studies on world-famous organisations such as Alibaba, Apple, H&M, • • A W Ryanair, Airbnb and Manchester United FC N H G I www.pearson-books.com WT T ININ • G R TO EN G N É R CVR_JOHN5174_11_SE_CVRv2.indd 1 25/11/2016 13:47 WELCOME TO EXPLORING STRATEGY Strategy is a crucial subject. It’s about the development, success and failure of all kinds of organisations, from multinationals to entrepreneurial start-ups, from charities to government agencies, and many more. Strategy raises the big questions about these organisations – how they grow, how they innovate and how they change. As a manager of today or tomorrow, you will be involved in shaping, implementing or communicat- ing these strategies. Our primary aim with Exploring Strategy is to give you a comprehensive understanding of the issues and techniques of strategy. We can also help you get a great final result in your course. You can make the most of the text by: ● Exploring hot topics in cutting-edge issues such as competition, corporate governance, innovation and entrepreneurship and strategy in practice. ● Engaging with our new ‘Thinking Differently’ sections to access novel and distinctive perspectives on core themes in strategy. ● Using the ‘strategy lenses’ to think critically and originally about key topics and to set you on your way to better grades in your assignments and exams. ● Pursuing some of the recommended readings at the end of each chapter. They’re specially selected as accessible and valuable sources that will enhance your learning and give you an extra edge in your course work. We want Exploring Strategy to give you what you need: a comprehensive view of the subject, an ambition to put that into practice, and – of course – success in your studies. We hope that you’ll be as excited by the key issues of strategy as we are! So, read on and good luck! Gerry Johnson Richard Whittington Kevan Scholes Duncan Angwin Patrick Regnér A01_JOHN5174_11_SE_A01.indd 1 24/11/2016 21:17 Gerry Johnson BA, PhD is Emeritus Professor of Strategic Management at Lancaster University School of Management. He has also taught at Strathclyde Business School, Cranfield School of Management, Manchester Business School and Aston University. He is the author of numerous books and his research has been published in many of the foremost management research journals in the world. He is also a partner in the consultancy partnership Strategy Explorers (see www.strategyexplorers.com ), where he works with senior management teams on issues of strategy development and strategic change. Richard Whittington MA, MBA, PhD is Professor of Strategic Management at the Saïd Business School and Millman Fellow at New College, University of Oxford. He is author or co-author of nine books and is an Associate Editor of the S trategic Management Journal. He has had full or visiting positions at the Harvard Business School, HEC Paris, Imperial College London, the University of Toulouse and the University of Warwick. He is a partner in Strategy Explorers and active in executive education and consulting. His current research focuses on strategy practice and ‘open strategy’. Kevan Scholes MA, PhD, DMS, CIMgt, FRSA is Principal Partner of Scholes Associates – specialising in strategic management. He is also Visiting Professor of Strategic Management and formerly Director of the Sheffield Business School, UK. He has extensive experience of teaching strategy to undergraduate and postgraduate stu- dents inside and outside the UK, as well as of management development work in private- and public-sector organisations. He has been an advisor on management development to a number of national bodies and is a Companion of the Chartered Management Institute. Duncan Angwin MA, MPhil, MBA, PhD is the Sir Roland Smith Professor of Strategic Management and Director of the Centre for Strategic Management at Lancaster University. He is author of eight books and many journal articles and serves on the editorial boards of several journals including Journal of Management Studies. He has taught strategy in over 20 countries and is active internationally in executive education and consulting. His current research focuses on mergers and acquisitions, strategy practices and international management. Patrick Regnér BSc, MSc, PhD is Professor of Strategic Management at Stockholm School of Economics. He has published in leading journals like the Strategic Management Journal, Journal of International Business, Human Relations , etc. and serves on the editorial boards of J ournal of Management Studies , Organization Studies and Strategic Organization. He has extensive experience of teaching strategy on all levels at several international institutions. He does executive teaching and consulting with organisations active worldwide and is senior advisor at strategy advisory firm Value Formation. His current research focuses on strategy and institutions. The case collection has been managed by Jason Evans, Clive Kerridge and Steve Pyle. A01_JOHN5174_11_SE_A01.indd 2 24/11/2016 21:17 EXPLORING STRATEGY E ELLEEVVEENNTTHH EEDDIITTIIOONN G GEERRRRYY JJOOHHNNSSOONN L Laannccaasstteerr UUnniivveerrssiittyy MMaannaaggeemmeenntt SScchhooooll R RIICCHHAARRDD WWHHIITTTTIINNGGTTOONN S Saaïïdd BBuussiinneessss SScchhooooll,, UUnniivveerrssiittyy ooff OOxxffoorrdd K KEEVVAANN SSCCHHOOLLEESS S Shheefffifi eelldd BBuussiinneessss SScchhooooll D DUUNNCCAANN AANNGGWWIINN L Laannccaasstteerr UUnniivveerrssiittyy MMaannaaggeemmeenntt SScchhooooll P PAATTRRIICCKK RREEGGNNÉÉRR S Sttoocckkhhoollmm SScchhooooll ooff EEccoonnoommiiccss Harlow, England • London • New York • Boston • San Francisco • Toronto • Sydney • Dubai • Singapore • Hong Kong Tokyo • Seoul • Taipei • New Delhi • Cape Town • Sao Paulo • Mexico City • Madrid • Amsterdam • Munich • Paris • Milan A01_JOHN5174_11_SE_A01.indd 3 24/11/2016 21:17 Pearson Education Limited Edinburgh Gate Harlow CM20 2JE United Kingdom Tel: +44 (0)1279 623623 Web: www.pearson.com/uk First edition (print) published under the Prentice Hall imprint 1984 Fifth edition (print) published under the Prentice Hall imprint 1998 Sixth edition (print) published under the Financial Times Prentice Hall imprint 2002 Seventh edition (print) 2005 Eighth edition (print) 2008 Ninth edition (print) 2011 Tenth edition published (2013) (print and electronic) Eleventh edition published (2017) (print and electronic) © Simon & Schuster Europe Limited 1998 (print) © Pearson Education 2002, 2011 (print) © Pearson Education Limited 2014, 2017 (print and electronic) The rights of Gerry Johnson, Richard Whittington, Kevan Scholes, Duncan Angwin and Patrick Regnér to be identified as authors of this work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988. The print publication is protected by copyright. Prior to any prohibited reproduction, storage in a retrieval system, distribution or transmission in any form or by any means, electronic, mechanical, recording or otherwise, permission should be obtained from the publisher or, where applicable, a licence permitting restricted copying in the United Kingdom should be obtained from the Copyright Licensing Agency Ltd, Barnard’s Inn, 86 Fetter Lane, London EC4A 1EN. The ePublication is protected by copyright and must not be copied, reproduced, transferred, distributed, leased, licensed or publicly performed or used in any way except as specifically permitted in writing by the publishers, as allowed under the terms and conditions under which it was purchased, or as strictly permitted by applicable copyright law. Any unauthorised distribution or use of this text may be a direct infringement of the authors’ and the publisher’s rights and those responsible may be liable in law accordingly. All trademarks used herein are the property of their respective owners. The use of any trademark in this text does not vest in the authors or publisher any trademark ownership rights in such trademarks, nor does the use of such trademarks imply any affiliation with or endorsement of this book by such owners. Contains public sector information licensed under the Open Government Licence (OGL) v3.0. http://www.nationalarchives. gov.uk/doc/open-government-licence/version/3/ . Pearson Education is not responsible for the content of third-party internet sites. The Financial Times. With a worldwide network of highly respected journalists, The Financial Times provides global business news, insightful opinion and expert analysis of business, finance and politics. With over 500 journalists reporting from 50 countries worldwide, our in-depth coverage of international news is objectively reported and analysed from an independent, global perspective. 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S.p.A., Italy NOTE THAT ANY PAGE CROSS REFERENCES REFER TO THE PRINT EDITION A01_JOHN5174_11_SE_A01.indd 4 24/11/2016 21:17 BRIEF CONTENTS Chapter 1 Introducing strategy 2 PART I THE STRATEGIC POSITION 29 Introduction to Part I 30 Chapter 2 Macro-environment analysis 32 Chapter 3 Industry and sector analysis 62 Chapter 4 Resources and capabilities 96 Chapter 5 Stakeholders and governance 132 Chapter 6 History and culture 162 Commentary on Part I The strategy lenses 190 PART II STRATEGIC CHOICES 205 Introduction to Part II 206 Chapter 7 Business strategy and models 208 Chapter 8 Corporate strategy and diversification 242 Chapter 9 International strategy 276 Chapter 10 Entrepreneurship and innovation 308 Chapter 11 Mergers, acquisitions and alliances 338 Commentary on Part II Strategic choices 368 PART III STRATEGY IN ACTION 371 Introduction to Part III 372 Chapter 12 Evaluating strategies 374 Chapter 13 Strategy development processes 410 Chapter 14 Organising and strategy 438 Chapter 15 Leadership and strategic change 468 Chapter 16 The practice of strategy 498 Commentary on Part III Strategy in action 532 A01_JOHN5174_11_SE_A01.indd 5 24/11/2016 21:17 BRIEF CONTENTS Glossary 535 Index of names 541 General index 547 Acknowledgements 557 vi A01_JOHN5174_11_SE_A01.indd 6 24/11/2016 21:17 CONTENTS Illustrations and Thinking Differently xvii Figures xix Tables xxiii Preface xxv Exploring Strategy features xxvii Exploring Strategy online xxviii 1 INTRODUCING STRATEGY 2 1.1 Introduction 3 1.2 What is strategy? 4 1.2.1 Defining strategy 4 1.2.2 T he purpose of strategy: mission, vision, values and objectives 7 1.2.3 Strategy statements 8 1.2.4 Levels of strategy 10 1.3 The Exploring Strategy Framework 11 1.3.1 Strategic position 12 1.3.2 Strategic choices 13 1.3.3 Strategy in action 14 1.4 Working with strategy 16 1.5 Studying strategy 18 1.6 Exploring strategy further 20 1.6.1 Exploring strategy in different contexts 20 1.6.2 Exploring strategy through different ‘strategy lenses’ 21 Summary 22 Work assignments 22 Recommended key readings 23 References 23 Case example: The rise of a unicorn – Airbnb 24 A01_JOHN5174_11_SE_A01.indd 7 24/11/2016 21:17 CONTENTS PART I THE STRATEGIC POSITION Introduction to Part I 30 2 MACRO-ENVIRONMENT ANALYSIS 32 2.1 Introduction 33 2.2 PESTEL analysis 34 2.2.1 Politics 35 2.2.2 Economics 38 2.2.3 Social 39 2.2.4 Technology 43 2.2.5 Ecological 44 2.2.6 Legal 45 2.2.7 Key drivers for change 48 2.3 Forecasting 48 2.3.1 Forecast approaches 49 2.3.2 Directions of change 50 2.4 Scenario analysis 51 Summary 55 Work assignments 55 Recommended key readings 56 References 56 Case example: Alibaba – the Yangtze River Crocodile 58 3 INDUSTRY AND SECTOR ANALYSIS 62 3.1 Introduction 63 3.2 The competitive forces 64 3.2.1 Competitive rivalry 65 3.2.2 The threat of entry 66 3.2.3 The threat of substitutes 66 3.2.4 The power of buyers 68 3.2.5 The power of suppliers 69 3.2.6 Complementors and network effects 69 3.2.7 Defining the industry 71 3.2.8 Implications of the Competitive Five Forces 73 3.3 Industry types and dynamics 74 3.3.1 Industry types 76 3.3.2 Industry structure dynamics 77 3.4 Competitors and markets 81 3.4.1 Strategic groups 81 3.4.2 Market segments 84 3.4.3 Critical success factors and ‘Blue Oceans’ 85 3.5 Opportunities and threats 87 viii A01_JOHN5174_11_SE_A01.indd 8 24/11/2016 21:17 CONTENTS Summary 88 Work assignments 89 Recommended key readings 89 References 90 Case example: Global forces and the advertising industry 92 4 RESOURCES AND CAPABILITIES 96 4.1 Introduction 97 4.2 Foundations of resources and capabilities 98 4.2.1 Resources and capabilities 98 4.2.2 Threshold and distinctive resources and capabilities 100 4.3 Distinctive resources and capabilities as a basis of competitive advantage 101 4.3.1 V – value of resources and capabilities 101 4.3.2 R – rarity 102 4.3.3 I – inimitability 102 4.3.4 O – organisational support 104 4.3.5 Organisational knowledge as a basis of competitive advantage 105 4.4 Diagnosing resources and capabilities 107 4.4.1 VRIO analysis 107 4.4.2 The value chain and value system 107 4.4.3 Activity systems 111 4.4.4 Benchmarking 114 4.4.5 SWOT 115 4.5 Dynamic capabilities 119 Summary 124 Work assignments 124 Recommended key readings 125 References 125 Case example: Rocket Internet – will the copycat be imitated? 128 5 STAKEHOLDERS AND GOVERNANCE 132 5.1 Introduction 133 5.2 Stakeholders 134 5.2.1 Stakeholder groups 134 5.2.2 Stakeholder mapping 136 5.2.3 Owners 139 5.3 Corporate governance 141 5.3.1 The governance chain 143 5.3.2 Different governance models 144 5.3.3 How boards of directors influence strategy 149 5.4 Social responsibility and ethics 150 5.4.1 Corporate social responsibility 150 5.4.2 The ethics of individuals and managers 153 ix A01_JOHN5174_11_SE_A01.indd 9 24/11/2016 21:17