Third Edition STRATEGY AND THE BUSINESS LANDSCAPE Pankaj Ghemawat Boston Columbus Indianapolis New York San Francisco Upper Saddle River Amsterdam Cape Town Dubai London Madrid Milan Munich Paris Montreal Toronto Delhi Mexico City Sao Paulo Sydney Hong Kong Seoul Singapore Taipei Tokyo
CONTENTS Preface viii About the Author x Chapter 1 The Origins of Strategy 1 Background 2 Academic Underpinnings 4 The Rise of Strategy Consultants 7 BCG and the Experience Curve 8 From the Experience Curve to Portfolio Planning 8 Strategic Business Units and Portfolio Planning 10 Problems and Promise 11 Summary 13» Glossary 14 Notes 14 Chapter 2 Mapping the Business Landscape 17 Supply-Demand Analysis 19 The "Five Forces" Framework 21 Force 1: The Degree of Rivalry 24 Force 2: The Threat of Entry 25 Force 3: The Threat of Substitutes 26 Force 4: Buyer Power 27 Force 5: Supplier Power 28 The Value Net and Other Generalizations 28 The Process of Mapping Business Landscapes 31 Step 1: Gathering Information 31 Step 2: Drawing the Boundaries 33 Step 3: Identifying Groups of Players 34 Step 4: Understanding Group-Level Bargaining Power 34 Step 5: Thinking Dynamically 35 Step 6: Responding to/shaping the Business Landscape 39 Summary 41 Glossary 42 Notes 42 Chapter 3 Creating Competitive Advantage 44 The Development of Concepts for Competitive Positioning 47 Cost Analysis 47 Differentiation Analysis 48 IV
Costs Versus Differentiation 50 Added Value 53 A Process for Analysis 54 Step 1: Using Activities to Analyze Relative Costs 55 Step 2: Using Activities to Analyze Relative Willingness to Pay 59 Step 3: Exploring Different Strategic Options and Making Choices 61 The Whole Versus the Parts 63 Summary 64 Glossary 65 A/ores 65 Contents Chapter 4 Anticipating Competitive Dynamics 68 Simple Games 69 Dynamic Games 73 Structuring the Game 74 Estimating Payoffs 74 Solving the Game: Equilibrium 77 Leveraging the Game 78 Competitor Profiling 79 An Application: Accenture's India Strategy 81 Integration 83 Opening Up the Analytical Process 85 Principle 1. Think Broadly about the Set of Strategic Options 86 VARIABLES 86 ASYMMETRIES 86 COMMITMENT POSTURES 86 INFORMATION 86 Principle 2. Augment the Toolkit for Dynamic Analysis 88 Principle 3. Match the Analytics to the Industry and Company Context 90 Summary 92 Glossary 92 Notes 92 Chapter 5 Sustaining Superior Performance 95 Sustainability and Resources 97 The Threat of Imitation 100 Private Information 101 Switching Costs/Relationships 101 Size Economies 102
vi Contents Threats of Retaliation 102 Imitation Lags 102 Upgrading 103 The Threat of Substitution 105 Not Responding 106 Migrating/Harvesting 106 Defending 107 Straddling 107 Switching 107 Recombining 107 Leapfrogging 108 The Threat of Holdup 108 Contracting 109 Integrating 109 Increasing (and Using) Bargaining Power 110 Building Mutual Dependence 110 Developing Trust 111 The Threat of Slack 112 Generating Information 114 Monitoring Behavior 114 Offering Performance Incentives 115 Shaping Norms 115 Bonding Resources 115 Changing Governance 115 Mobilizing for Change 115 An Integrative Example: Wal-Mart 116 Summary 119 Glossary 120 Notes 120 Chapter 6 Choosing Corporate Scope 123 The Practice of Corporate Strategy over Time 124 Two Tests 126 The Better-Off Test 129 Industry Attractiveness 129 Competitive Advantage " 130 COST EFFECTS 131 WILUNGNESS-TO-PAY/PRICE EFFECTS 132 DUAL EFFECTS 134 Risk Considerations 135
Contents vii The Best-Alternative Test 136 Transactions Costs and Ownership 136 Models of Corporate Management 139 An Application: Merrill Lynch's Analysis of the AOL Time Warner Merger 142 Summary 145 Glossary 146 A/ores 146 Chapter 7 Developing a Global Strategy 148 Name Index 177 Company Index 178 Subject Index 179 i The Practice of Global Strategy 149 Semiglobalization: The Real State of the World 151 The Differences Across Countries and the CAGE Distance Framework 153 The Better-Off Test 157 Industry Attractiveness 159 Cost Effects 160 Differentiation Effects 161 Dual Effects 162 Risk Considerations 164 The Best-Alternative Test 165 AAA Strategies for Dealing with Differences 167 Adaptation: Adjusting to Differences 168 Aggregation: Overcoming Differences 170 Arbitrage: Exploiting Differences 170 Integrating the AAA Strategies 171 Summary 173 Glossary 174 Notes 174