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EIGHTH EDITION

EXPLORING
CORPORATE STRATEGY
Gerry Johnson
University of Strathclyde

Kevan Scholes
Sheffield Hallam University

Richard Whittington
Saïd Business School, University of Oxford

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Pearson Education Limited
Edinburgh Gate
Harlow
Essex CM20 2JE
England
and Associated Companies throughout the world
Visit us on the World Wide Web at:
www.pearsoned.co.uk
Fifth edition published under the Prentice Hall imprint 1998
Sixth edition published under the Financial Times Prentice Hall imprint 2002
Seventh edition 2005
Eighth edition published 2008
© Simon & Schuster Europe Limited 1998
© Pearson Education Limited 2002, 2008
The rights of Gerry Johnson, Kevan Scholes and Richard Whittington to be identified as authors of this
work have been asserted by them in accordance with the Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or
transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise,
without either the prior written permission of the publisher or a licence permitting restricted copying in
the United Kingdom issued by the Copyright Licensing Agency Ltd, Saffron House, 6–10 Kirby Street,
London EC1N 8TS.
All trademarks used herein are the property of their respective owners. The use of any trademark in this
text does not vest in the author 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.
ISBN: 978-0-273-71191-9 (text only)
ISBN: 978-0-273-71192-6 (text and cases)
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
10 9 8 7 6 5 4 3 2 1
11 10 09 08 07
Typeset in 9.5/13pt Linoletter by 35
Printed and bound by Rotolito Lombarda, Italy
The publisher’s policy is to use paper manufactured from sustainable forests.

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1 Introducing Strategy
1.1 Introduction
1.2 What is strategy?
1.2.1 The characteristics of strategic decisions
1.2.2 Levels of strategy
1.2.3 The vocabulary of strategy
1.3 Strategic management
1.3.1 The strategic position
1.3.2 Strategic choices
1.3.3 Strategy in action
1.4 Strategy as a subject of study
1.5 Strategy as a job
1.6 The strategy lenses
Summary
Work assignments
Recommended key readings
References
Case example: Electrolux

Commentary The Strategy Lenses

Part I

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THE STRATEGIC POSITION

Introduction to Part I

51

2 The Environment

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2.1 Introduction
2.2 The macro-environment
2.2.1 The PESTEL framework
2.2.2 Building scenarios

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2.3 Industries and sectors
2.3.1 Competitive forces – the five forces framework
2.3.2 The dynamics of industry structure
2.4 Competitors and markets
2.4.1 Strategic groups
2.4.2 Market segments
2.4.3 Identifying the strategic customer
2.4.4 Understanding what customers value – critical
success factors
2.5 Opportunities and threats
Summary
Work assignments
Recommended key readings
References
Case example: Global forces and the European brewing industry

3 Strategic Capability
3.1 Introduction
3.2 Foundations of strategic capability
3.2.1 Resources and competences
3.2.2 Threshold capabilities
3.2.3 Unique resources and core competences
3.3 Cost efficiency
3.4 Capabilities for achieving and sustaining competitive advantage
3.4.1 Value of strategic capabilities
3.4.2 Rarity of strategic capabilities
3.4.3 Inimitable strategic capabilities
3.4.4 Non-substitutability of strategic capabilities
3.4.5 Dynamic capabilities
3.5 Organisational knowledge
3.6 Diagnosing strategic capability
3.6.1 The value chain and value network
3.6.2 Activity maps
3.6.3 Benchmarking
3.6.4 SWOT
3.7 Managing strategic capability
3.7.1 Limitations in managing strategic capabilities
3.7.2 Developing strategic capabilities
3.7.3 Managing people for capability development
Summary
Work assignments
Recommended key readings
References
Case example: Making eBay work

4 Strategic Purpose
4.1 Introduction
4.2 Corporate governance

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4.2.1 The governance chain
4.2.2 Corporate governance reforms
4.2.3 Different governance structures
4.2.4 How governing bodies influence strategy
4.2.5 Ownership choices
4.3 Business ethics and social responsibility
4.3.1 Corporate social responsibility
4.3.2 The role of individuals and managers
4.4 Stakeholder expectations
4.4.1 Stakeholder mapping
4.4.2 Power
4.5 Organisational purposes: values, mission, vision and objectives
4.5.1 Corporate values
4.5.2 Mission and vision statements
4.5.3 Objectives
Summary
Work assignments
Recommended key readings
References
Case example: Product Red and Gap

5 Culture and Strategy
5.1 Introduction
5.2 Strategic drift
5.2.1 Strategies change incrementally
5.2.2 The tendency towards strategic drift
5.2.3 A period of flux
5.2.4 Transformational change or death
5.3 Why is history important?
5.3.1 Path dependency
5.3.2 Historical analysis
5.4 What is culture and why is it important?
5.4.1 National and regional cultures
5.4.2 The organisational field
5.4.3 Organisational culture
5.4.4 Organisational subcultures
5.4.5 Culture’s influence on strategy
5.4.6 Analysing culture: the cultural web
5.4.7 Undertaking cultural analysis
5.5 Managing in an historic and cultural context
Summary
Work assignments
Recommended key readings
References
Case example: Marks & Spencer (A)

Commentary on Part I The Strategic Position

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Part II

STRATEGIC CHOICES

Introduction to Part II

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6 Business-Level Strategy

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6.1 Introduction
6.2 Identifying strategic business units
6.3 Bases of competitive advantage: the ‘strategy clock’
6.3.1 Price-based strategies (routes 1 and 2)
6.3.2 (Broad) Differentiation strategies (route 4)
6.3.3 The hybrid strategy (route 3)
6.3.4 Focused differentiation (route 5)
6.3.5 Failure strategies (routes 6, 7 and 8)
6.4 Sustaining competitive advantage
6.4.1 Sustaining price-based advantage
6.4.2 Sustaining differentiation-based advantage
6.4.3 Strategic lock-in
6.4.4 Responding to competitive threat
6.5 Competitive strategy in hypercompetitive conditions
6.5.1 Overcoming competitors’ bases of strategic advantage
6.5.2 Characteristics of successful hypercompetitive strategies
6.6 Competition and collaboration
6.7 Game theory
6.7.1 The ‘prisoner’s dilemma’: the problem of cooperation
6.7.2 Sequential games
6.7.3 Changing the rules of the game
Summary
Work assignments
Recommended key readings
References
Case example: Madonna: still the reigning queen of pop?

7 Directions and Corporate-Level Strategy
7.1 Introduction
7.2 Strategic directions
7.2.1 Market penetration
7.2.2 Consolidation
7.2.3 Product development
7.2.4 Market development
7.2.5 Diversification
7.3 Reasons for diversification
7.3.1 Related diversification
7.3.2 Unrelated diversification
7.3.3 Diversification and performance
7.4 Value creation and the corporate parent
7.4.1 Value-adding and value-destroying activities of
corporate parents

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7.4.2 The portfolio manager
7.4.3 The synergy manager
7.4.4 The parental developer
7.5 Portfolio matrices
7.5.1 The growth/share (or BCG) matrix
7.5.2 The directional policy (or GE–McKinsey) matrix
7.5.3 The parenting matrix
Summary
Work assignments
Recommended key readings
References
Case example: The Virgin Group

8 International Strategy
8.1 Introduction
8.2 Internationalisation drivers
8.3 National and international sources of advantage
8.3.1 Porter’s Diamond
8.3.2 The international value network
8.4 International strategies
8.5 Market selection and entry
8.5.1 Market characteristics
8.5.2 Competitive characteristics
8.5.3 Entry modes
8.6 Internationalisation and performance
8.7 Roles in an international portfolio
Summary
Work assignments
Recommended key readings
References
Case example: Lenovo Computers: East meets West

9 Innovation and Entrepreneurship
9.1 Introduction
9.2 Innovation dilemmas
9.2.1 Technology push or market pull
9.2.2 Product or process innovation
9.2.3 Technological or business model innovation
9.3 Innovation diffusion
9.3.1 The pace of diffusion
9.3.2 The diffusion S-curve
9.4 Innovators and followers
9.4.1 First-mover advantages and disadvantages
9.4.2 First or second?
9.4.3 The incumbents’ response
9.5 Entrepreneurship and relationships
9.5.1 Stages of entrepreneurial growth
9.5.2 Entrepreneurial relationships
9.5.3 Social entrepreneurship

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Summary
Work assignments
Recommended key readings
References
Case example: Skype: innovators and entrepreneurs

10 Strategy Methods and Evaluation
10.1 Introduction
10.2 Methods of pursuing strategies
10.2.1 Organic development
10.2.2 Mergers and acquisitions
10.2.3 Strategic alliances
10.3 Strategy evaluation
10.3.1 Suitability
10.3.2 Acceptability
10.3.3 Feasibility
10.3.4 Evaluation criteria: three qualifications
Summary
Work assignments
Recommended key readings
References
Case example: Tesco conquers the world?

Commentary on Part II Strategic Choices

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Part III STRATEGY IN ACTION
Introduction to Part III

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11 Strategy Development Processes

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11.1 Introduction
11.2 Intended strategy development
11.2.1 Strategy development through strategic leadership:
the role of vision and command
11.2.2 Strategic planning systems
11.2.3 Externally imposed strategy
11.3 Emergent strategy development
11.3.1 Logical incrementalism
11.3.2 Resource allocation processes
11.3.3 Organisational politics
11.3.4 Cultural processes
11.4 Patterns of strategy development
11.5 Challenges for managing strategy development
11.5.1 Managing intended and realised strategy
11.5.2 The learning organisation
11.5.3 Strategy development in uncertain and complex
conditions

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Summary
Work assignments
Recommended key readings
References
Case example: Strategy development at Intel

12 Organising for Success
12.1 Introduction
12.2 Structural types
12.2.1 The functional structure
12.2.2 The multidivisional structure
12.2.3 The matrix structure
12.2.4 The transnational structure
12.2.5 Project-based structures
12.2.6 Choosing structures
12.3 Processes
12.3.1 Direct supervision
12.3.2 Planning processes
12.3.3 Cultural processes
12.3.4 Performance targeting processes
12.3.5 Market processes
12.4 Relationships
12.4.1 Relating internally
12.4.2 Relating externally
12.4.3 Configuration dilemmas
Summary
Work assignments
Recommended key readings
References
Case example: Hurricane Katrina: human-made disaster?

13 Resourcing Strategies
13.1 Introduction
13.2 Managing people
13.2.1 People as a resource
13.2.2 People and behaviour
13.2.3 Organising people
13.2.4 Implications for managers
13.3 Managing information
13.3.1 Information and strategic capability
13.3.2 Information and changing business models
13.3.3 Implications for managers
13.4 Managing finance
13.4.1 Managing for value
13.4.2 Funding strategy development
13.4.3 The financial expectations of stakeholders
13.5 Managing technology
13.5.1 Technology and the competitive situation
13.5.2 Technology and strategic capability

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