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“This may be the best strategic management textbook that I have seen in recent
years. Amason and Ward cover the standard topics that need to be addressed—and
do so in a clear, straightforward manner. Then, in a conclusions section at the end
of each chapter, offer insightful commentary on the chapter topic. Students should
find this book interesting, useful, and perceptive.”
Gary Castrogiovanni, Florida Atlantic University
“Allen C. Amason and Andrew Ward have written a fabulously readable and totally up-
to-date book. It draws from classic, time-tested concepts but in a way that is completely
contemporary and fresh. I especially admire the in-depth discussion of analytic frame-
works along with more behavioral and social aspects of executive leadership. The book
will serve both students and instructors of strategic management exceedingly well.”
Donald C. Hambrick, The Pennsylvania State University
“Amason and Ward’s Strategic Management (second edition) is a wonderful book, cur-
rent, thoughtful, innovative, and comprehensive. Its focus on leadership and its role in
value creation is especially noteworthy. Well written and easy to follow, the book does
a masterful job in capturing current thinking while being accessible. Cases and vivid
examples make the book fun to read and easy to apply. I strongly recommend it.”
Shaker A. Zahra, University of Minnesota
“Amason and Ward’s book provides a solid presentation of tools and insights nec-
essary for a fine strategy text. It also nicely balances analytics of strategy and the
management of strategy.”
Philip Bromiley, University of California, Irvine
“Allen C. Amason and Andrew Ward have taken the associated theory and research
relating to strategic management and presented it in a straightforward and under-
standable manner that challenges each reader, regardless of career level, to question
his or her past strategy decisions and methods of determining those decisions.”
Craig Loyal Sarna, Account Executive, GE Capital Solutions
“Thinking and acting strategically are key to any successful manager or business.
This book bridges the gap between just learning about strategic management and
applying strategic thinking and models to everyday business challenges and situ-
ations. This practical text provides an experienced voice to the research, adding a
needed and integral set of skills to any manager’s repertoire.”
Julie Staggs, Senior Client Consultant, Stamats, Inc.
“Amason and Ward do an exceptional job of shining a spotlight on the subtle differ-
ence between a text ‘on’ strategic management and a book ‘about’ strategic man-
agement. Students using their text will have the confidence and desire to take
responsibility for value creation, rather than simply understand it.”
Jim Martin, Regional Director, Senior Vice President, Eagle Asset Management
Strategic Management
A focus on creating and sustaining a flow of profitable transactions, in other words,

the creation of sustainable competitive advantage, is the seemingly simple, yet
complex goal of strategic leaders and managers. Allen C. Amason and Andrew
Ward approach the topic of strategic management with this focus in mind. Rather
than simply teaching theory and research, Amason and Ward seek to convey the
fundamental keys to how strategy works.
This book is designed to help students think critically and understand fully how to
strategically manage their future firms. In so doing, it will enable them to adapt and
learn, even as their circumstances change, and to apply sound logic and reasoning,
even in new and unfamiliar settings. By conveying enduring and fundamental
principles of economic and human behavior rather than simply reporting on the
latest innovations, this book succeeds in preparing students to excel in the business
environment over time, regardless of how it evolves.
Allen C. Amason is Professor of Management and Dean of the Parker College of

Business at Georgia Southern University.
Andrew Ward is the Charlot and Dennis E. Singleton ’66 Endowed Chair of
Corporate Governance and Professor of Management at Lehigh University College
of Business.
Strategic Management
From Theory to Practice
SECOND EDITION
Allen C. Amason and Andrew Ward

Second edition published 2021
by Routledge
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and by Routledge
2 Park Square, Milton Park, Abingdon, Oxon, OX14 4RN
Routledge is an imprint of the Taylor & Francis Group, an informa business
© 2021 Taylor & Francis
The right of Allen C. Amason and Andrew Ward to be identified as authors of
this work has been asserted by them in accordance with sections 77 and 78 of the
Copyright, Designs and Patents Act 1988.
All rights reserved. No part of this book may be reprinted or reproduced or utilised in
any form or by any electronic, mechanical, or other means, now known or hereafter
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retrieval system, without permission in writing from the publishers.
Trademark notice: Product or corporate names may be trademarks or registered
trademarks, and are used only for identification and explanation without intent to
infringe.
First edition published by Routledge 2011
British Library Cataloguing-in-Publication Data
A catalogue record for this book is available from the British Library
Library of Congress Cataloging-in-Publication Data
Names: Amason, Allen C, author. | Ward, Andrew (Andrew John) author.
Title: Strategic management : from theory to practice / Allen C Amason,
Andrew Ward.
Description: Second Edition. | New York : Routledge, 2020. | Revised edition of
Strategic management, 2011. | Includes bibliographical references and index.
Identifiers: LCCN 2020012829 (print) | LCCN 2020012830 (ebook) |
ISBN 9780367430054 (hardback) | ISBN 9780367430061 (paperback) |
ISBN 9781003000594 (ebook)
Subjects: LCSH: Strategic planning. | Management.
Classification: LCC HD30.28 .A425 2020 (print) | LCC HD30.28 (ebook) |
DDC 658.4/012—dc23
LC record available at https://lccn.loc.gov/2020012829
LC ebook record available at https://lccn.loc.gov/2020012830
ISBN: 978-0-367-43005-4 (hbk)
ISBN: 978-0-367-43006-1 (pbk)
ISBN: 978-1-003-00059-4 (ebk)
Typeset in Berling and Futura
by Apex CoVantage, LLC
Accompanying website: www.strategicmanagement.business

Dedication
Allen C. Amason’s Dedication: Writing a book takes a significant

investment of time, effort, and energy. Focusing all of those things on
any single project like this ultimately means focusing less on others.
And so, I dedicate this book to those who have loved and supported me
most throughout the process of writing this book and building my career
as a scholar, teacher, and manager: my late wife, Cricket; our children,
Chase, Shana, Jaclyn, Alex, Christopher, Yanna, and Hunter; and our
grandchildren, Ronan, George, and Rhett. I love you all.
Andrew Ward’s Dedication: Writing a book that attempts to summarize

a whole field is daunting, and I know that there will be some areas that
we haven’t done sufficient justice to. However, to reach the point of
being able to even attempt this task has taken a great deal of mentorship
throughout the years, as well as many years’ experience of teaching the
subject. Accordingly, I would like to dedicate this book to the teachers,
practitioners, and scholars who have mentored me during the course of
my career; the many students who I have had the pleasure of teaching,
guiding, and mentoring; and my family, who have supported me in this
chosen profession.
Brief Table of Contents
About the Authors xvii

Acknowledgements xix
Preface xx
1 An Introduction to Strategic Management 1
2 Understanding Organizational Performance 22
3 Tools of the Trade 50
4 Analyzing the Environment 83
5 Organizational Strengths and Weaknesses: Analyzing a Firm’s

Capabilities and Resources 118
6 Strategies for Competitive Advantage 148

7 Corporate and Multi-Business Unit Strategy 175
8 Implementation, Adaptation and Learning 202

9 Disruptive Megatrends 238
10 Issues of Context, Setting and Application 263
References 305
Index 311

Detailed Table of Contents
About the Authors xvii

Acknowledgements xix
Preface xx
1 An Introduction to Strategic Management 1
Google: A Story of Great Success 1

A Quest for Performance 5
Strategic Management 6
Basic Definitions 7
Plan, Ploy, Pattern, Position, and Perspective 8
Competitive Advantage 9
Focusing on Transactions 12
Strengths, Weaknesses, Opportunities, and Threats 15
Competitive Advantage and Firm Performance 16
The End of the Beginning 18
2 Understanding Organizational Performance 22
Valuing Facebook 22
Understanding Organizational Performance 24
Value as a Measure of Performance 25
Profitability as a Measure of Performance 27
Performance Over Time 31
xii Detailed Table of Contents
Performance From a Variety of Perspectives 34

Tobin’s q 34
Economic Value Added 37
Performance in Context 41
Purpose, Values, and Mission 43
Taking Stock of Performance 47
3 Tools of the Trade 50
The Tools of the Trade 50

Organizational Mission, Values, and Intentions 54
Organizational Abilities, Skills, and Resources 58
Environmental Conditions and Characteristics 60
Goals, Objectives, and Strategies 63
Functional Strategies and Implementation 68
Learning, Adaptation, and Change 71
Additional Thoughts and Caveats 75
Starting From Scratch Is the Exception 75
Whose Job Is Strategic Management? 76
Intended Versus Realized Outcomes 78
The Process Is Often Messy 79
4 Analyzing the Environment 83
Defining the Business and the Environment 85

The Macro-Environment: PESTEL Framework 86
Analyzing the Competitive Environment 92
The 5-Forces Model 93
Bargaining Power of the Seller 94
Bargaining Power of the Buyer 95
Availability of Substitutes 96
Threat of New Entrants 97
Rivalry Among Competitors 98
Competitiveness and the Lifecycle Model 100
Ongoing Evolution in the Environment 106
Concluding Thoughts and Caveats 110
Hypercompetition111
Industry Definition 112
Locus of Competition 113
Detailed Table of Contents xiii
5 Organizational Strengths and Weaknesses:

Analyzing a Firm’s Capabilities and Resources 118
Harley-Davidson119
Introduction to Organizational Analysis 120
The Resource-Based View 123
Value124
Rarity124
Inimitability125
Non-Substitutability127
Appropriability128
The Value Chain 129
Analysis of Resources and Capabilities 131
Summary139
The Fallacy of the Better Mousetrap 140
The Ongoing Nature of Sustainability 142
Ambiguity and Social Complexity 143
6 Strategies for Competitive Advantage 148
Home Depot and Lowe’s 148

The Nature of Competitive Advantage 149
Competitive Advantage as an Interaction 150
The Transaction-Based View 151
Value Is Determined by the Customer 154
Determinations of Value Are Context-Specific 155
Value Is Episodically Specific 157
Different Types of Competitive Advantage 158
Focus158
Differentiation160
Low Cost 162
Differentiation, Low Cost, and Performance 164
Some Final Caveats 166
Simple Supply and Demand? 166
Monopoly, Limits to Competition, and
Stuck in the Middle 168
The Dynamic Capabilities Perspective 171
xiv Detailed Table of Contents
7 Corporate and Multi-Business Unit Strategy 175
Google and the Formation of Alphabet Inc. 176

History and the Transition From Google to Alphabet Inc. 176
Introduction177
Corporate-Level Strategy 178
Corporate Strategy and Portfolio Management 179
The Challenge of Corporate Strategy 181
Corporate Strategy and Competitive Advantage 185
Portfolio Management 186
Restructuring188
Transferring Skills 190
Sharing Activities 191
Summary192
Final Caveats 193
Related and Unrelated Diversification 193
Market Selection 194
The M-Form Organizational Structure 195
Organizational Culture 197
Multi-Point Competition 198
8 Implementation, Adaptation, and Learning 202
Billions Served 202

Implementation204
Another Level of Fit 206
McKinsey 7-S Model 208
Short-Term Fit, Long-Term Flexibility 213
The Paradox of Success 215
Exploitation Versus Experimentation 218
When Less Is More 221
Adaptation and Learning 225
Summary227
Some Final Thoughts 228
Dynamic Capabilities 228
Real Options 230
Problems With Present Value 232
A Means to an End 234
Detailed Table of Contents xv
9 Disruptive Megatrends 238
The Demise of Toys “R” Us 238

Globalization241
Internet241
Mobile Devices 243
Changing Demographics 245
Climate Change 246
Big Data, Fast Data 247
Rapid Urbanization 248
Social Commerce 248
Technology Advances 249
Blockchain250
Energy Generation and Storage 251
Scenario Planning 252
Building Scenarios 253
The Real Challenge 257
Method and Myth 258
Mega and Micro, Aggregation, and Causality 260
10 Issues of Context, Setting, and Application 263
A Broad Value Proposition 264

A Highly Generalizable Discipline 265
Entrepreneurship268
Parallel Models 269
New Complexities 272
International Business 273
International Strategies 277
Implementation and Fit 281
Leadership283
Basics of Leadership and Strategy 284
Casting a Vision 284
Communicating and Motivating 285
Catalyzing Innovation and Change 287
Driving for Results 288
Adding Value 290
xvi Detailed Table of Contents
Corporate Governance 291

Public and Private Ownership 291
Agency Problems 293
Governing the Board 296
Governance, Value, and Strategic Management 297
Conclusions298
References 305
Index 311

About the Authors
Allen C. Amason, Ph.D. is Dean of the Parker College of Business at Georgia

Southern University. He earned his Ph.D. in Strategic Management and Interna-
tional Business from the Moore School of Business at the University of South Caro-
lina and served on the faculties of Mississippi State and the University of Georgia,
where he was Chair of the Terry College Department of Management.
Dr. Amason’s research focuses on strategic decision making and the role of top
management in the strategy process. He has published more than 40 articles, books,
and chapters in various scholarly outlets, served on the editorial boards of several
top journals, and was Associate Editor for the Journal of Management Studies and
the Journal of Management. He is past-President of the Southern Management
Association. Professor Amason’s teaching and consulting focuses on strategic man-
agement and decision making. He has served on the boards of various organizations
and done C-level consulting on issues related to strategy and strategic decision mak-
ing with a variety of widely recognized and leading firms in the U.S. and around the
world.
He holds a bachelor’s degree in finance, from Georgia Southern, and, prior to her
passing in 2019, was married for 36 years to his high school sweetheart and Georgia
Southern alumna, Cricket Amason. They have 4 children, the youngest of whom is
the subject of his book Expensive Yanna: An Adoption Story.
Andrew Ward, Ph.D. is the Charlot and Dennis E. Singleton ’66 Endowed Chair in
Corporate Governance and Professor of Management. From 2010 to 2018 he also
served as the Associate Dean for the College of Business at Lehigh University with
responsibility for all graduate programs (Ph.D., Master’s, and MBA) for the college.
Prior to joining Lehigh University, he was a member of the management faculty
at the Terry College of Business at the University of Georgia and previously at the
Goizueta Business School of Emory University.
xviii About the Authors
Dr. Ward conducts research on issues related to corporate governance including

CEO successions, CEO compensation, the roles and concerns of the chief execu-
tive officer, CEO/board relations, reputation, and leadership and has published
articles in several leading academic journals, including Academy of Management
Journal, Administrative Science Quarterly, and Organization Science. Dr. Ward’s work
has been featured in numerous publications including Harvard Business Review,
Business Week, The Washington Post, The Financial Times, Directorship, Directors
and Boards, Investor’s Business Daily, and Leaders Magazine. His first book, The
Leadership Lifecycle: Matching Leaders to Evolving Organizations (Palgrave, 2003)
examines how leadership needs change over the course of an organization’s life. His
book Firing Back: How Great Leaders Rebound After Career Disasters is co-authored
with Dr. Jeffrey Sonnenfeld of Yale University and was published by Harvard
Business School Press in 2007. Firing Back has received national and international
media attention with reviews in The New York Times, The Washington Post, The Los
Angeles Times, The Financial Times, Forbes, Business Week, and The Economist among
other publications.
A native of England, Ward received his undergraduate degree from the University
of Surrey, his MBA from the Goizueta Business School of Emory University, and his
Ph.D. from The Wharton School of the University of Pennsylvania.
Acknowledgements
We are extremely grateful to Munzer Abu-ghosh for his extensive research

assistance.
Preface
Welcome to the Second Edition of Strategic Management: From Theory to Practice.

As a potential reader or adopter of this text, you may ask: Why another book on this
subject? Certainly, there is no shortage of alternatives, all authored by good scholars
who are also knowledgeable in their field and passionate about their work. The
answer is that this book is fundamentally different from those others. Moreover, the
things that make this book different will also make it an especially valuable tool for
teaching, for learning, and for the practice of good strategic management. Indeed,
students and instructors alike are likely to find this approach novel, accessible, and
most of all valuable, as they grapple with the complexities of the business world.
What makes it so different? Stated plainly, it is a book on strategic manage-
ment rather than a book about strategic management. The difference is subtle but
important and reflects a basic question that every teacher of this material should
ask, specifically, why do students take this course and what must they take away
from it in order to have a successful experience? It is my belief that students expect
to leave this course as better strategic thinkers and managers. They want to be able
to do the things, to make the decisions, and to deliver the results that will enable
their success. In essence, they come to this course wanting to become successful or
to become more successful. So, this text is organized and oriented in such a way
as to help.
Rather than try to convey all that theory has to say on a subject, the book seeks
to translate what theory has to say into principles and practices that students need
to know in order to accomplish what that they want to accomplish. As mentioned,
it is a subtle difference but it is an important one. It reflects an approach that is
grounded firmly in theory and research but that is ever so practical in application.
It reflects roughly 50 years of combined experience on the part of the authors,
teaching strategic management to executives and executive MBAs, as well as to tra-
ditional MBA, Ph.D., and undergraduate students. And it reflects a desire to com-
municate, in a straightforward and plain-spoken way, a model that has too often
Preface xxi
seemed overly esoteric and academic to students and executives alike. In essence,
the approach is to render strategic management practical by making it accessible
and to leverage its utility by leveraging its generalizability. Everything in the book,
then, from its coverage to its organization, reflects this philosophy.
Chapter 1 is an introduction built on a simple foundation—namely, that it is all
about performance. There is a song by Sean “Diddy” Combs entitled “It’s All About
the Benjamins.” Few books or articles capture the practical essence of our discipline
as well as this simple phrase. In business we keep score by measuring performance,
and performance is a function of strategy. Of course, strategy and strategic manage-
ment can mean different things to different people, and the study and practice of
strategy can involve all manner of complexity and nuance. But tying it all together
is the focus and the impact on performance.
Chapter 2 then addresses the question unanswered in Chapter 1: What is perfor-
mance? While seemingly simple, the issue of performance has been elaborated and
complicated by the myriad different measures that are employed to capture it and
by the context in which it is evaluated. Thus, great attention is paid to the techni-
cal challenges and trade-offs in performance measurement. Here too, though, the
point is to simplify and make accessible and to show performance from a variety
of perspectives. Moreover, the discussion is connected to strategic management to
illustrate the responsibility and challenge of the role.
Chapter 3 begins the process of meeting that challenge, and strategic manage-
ment is presented as a set of “tools” that can help. Covered in this chapter are the
principal components of the model. However, the point is not to be comprehensive
or exhaustive. Indeed, we intentionally gloss over some fine-grained distinctions
and lump together some things that others would prefer to keep separate. We do
this because the purpose is to simplify and make practical, to focus on questions
of “why” rather than questions of “what,” and to provide an overarching framework
for the practice of strategy.
Chapter 4 covers the first step in that application analysis of the environment.
While similar in many ways to other texts, this analysis is different in some funda-
mental ways as well. The first is the way the environment is defined. With a goal
of practical accessibility, we define competition as those who interfere with the
relationship a firm has to its customers. We define the competitive environment
as the sum of those first-order connections that affect the relationship of a firm to
its customers. Finally, we cast environmental analysis as the input to the rest of the
strategic process. Through the analysis of past, present, and future, environmental
analysis must produce the insights that will motivate every step thereafter.
Chapter 5 takes that input and answers the question: Now what? How does
a strategist take the output from the environmental analysis and convert it into
strategy? The chapter focuses on some common tools for this, such as SWOT, the
value chain, and VRIN (value, rarity, inimitability, and non-substitutability) analy-
ses. These tools along with examples of how they are best applied are meant to
xxii Preface
provide a mechanism for answering the “What now?” question that often arises in
the real practice of strategic management.
Chapter 6 focuses directly on competitive advantage and flows naturally from
the issues in Chapters 4 and 5. However, rather than discuss competitive advantage
as an organizational-level construct, we discuss it as it exists at the transaction level.
The point is to facilitate better connection between the “why” and the “how” of
strategy. How does the practice of strategy with all of its various models and tools
actually connect to performance? The answer is by enabling more and more profit-
able transactions. This approach also provides a practical measure of competitive
advantage that is both tangible and immediate and that links directly to financial
performance.
Chapter 7 introduces the concept of multi-business strategy. Viewing competi-
tive advantage at the transaction level focuses attention on environmental con-
ditions and organizational attributes. Those conditions and attributes are specific
to individual business units. But what does strategy have to say about diversified
firms with multiple business units? Answering that question requires a discussion
of synergy and of the “better-off” principle. In essence, a diversified firm should be
more valuable than the sum of its individual business units or its corporate strategy
will have been unsuccessful. How a firm gains and manages that synergy so as to be
better off is the subject of this chapter.
Chapter 8 deals with implementation and marks the final step in the framework.
A good comprehension of implementation requires understanding two distinct
topics: fit and change. It also requires understanding that the relationship between
these things is paradoxical. Designing a firm so that it is tightly fit to the current
strategy and the demands of the current environment can facilitate performance in
the short term. However, it also limits flexibility and adaptability in the long term.
Yet performing well over time requires that attention be paid to both. This chapter,
then, is meant to explain both topics in a practical and accessible way, while also
introducing the subsequent dilemma and offering insights on how to manage it.
Chapter 9 is part addendum, part insightful application. It discusses the impact
of megatrends that have helped to shape the world’s economy and the various
business models, operating norms, and strategic paradigms that characterize the
business world today. As we discuss, the challenge with these megatrends is that,
while they are extraordinarily powerful forces, they are difficult to identify and
understand in advance. Thus, we spend time looking forward and thinking about
the megatrends that, while only emerging today, may well shape the business world
tomorrow.
Chapter 10, the final chapter, is offered both as a summary of the book and as
a point of connection between the practice of strategy and leadership. Chapter
10 does not flow directly from the previous chapters but rather derives from the
sum of them, by showing the generalizable nature of strategic management. It
does this by comparing similarities in the strategic management framework to
Preface xxiii
issues in entrepreneurship and international business. It also connects some of the

basic dynamics and functions of leadership and governance to the larger strategic
management framework. Some will surely object to presenting these topics and
disciplines so briefly and as subsets of strategic management. But the treatment
is intentional and meant to illustrate that, by truly understanding the framework
and principles of strategy, anyone can move and work efficiently across a range of
contexts and settings.
The sum total of the book, then, is a straightforward walk through the principles
and practices of strategic management. Like other books, this one draws from theory
and research as it explains the tools, models, and logic of the discipline. However,
the language, perspective, and approach are subtly and yet fundamentally differ-
ent. The result is a text that should be interesting, accessible, and useful to students
at every level—undergraduate, MBA, and executive. Moreover, it is an approach
that should be refreshingly different and yet still very comfortable for researchers,
teachers, and students alike. Additional supplemental material to accompany this
book is available at www.strategicmanagement.business
Cha p t e r 1
An Introduction to Strategic
Management
Google: A Story of Great Success 1
A Quest for Performance 5
Strategic Management 6
Basic Definitions 7
Plan, Ploy, Pattern, Position, and Perspective
Focusing on Transactions 12
Strengths, Weaknesses, Opportunities, and Threats 15
Competitive Advantage and Firm Performance 16
The End of the Beginning 18
GOOGLE: A STORY OF GREAT SUCCESS
September 4th of 2018 marked 20 years since the incorporation of Google. Founded
in 1996 by Larry Page and Sergey Brin, two graduate students at Stanford University,
Google is one of the world’s most valuable companies and most iconic brands. Its
first and still best-known product is its search engine. Page and Brin designed their
new and better search engine around a superior system for analyzing the relation-
ships among websites. The result was a program that enabled searches that were
2 An Introduction to Strategic Management
more efficient and more relevant than previously available. Hence, Google was
created; the domain name was registered in September of 1997, and the com-
pany was incorporated in 1998. It went public through an IPO in 2004 and it was
cemented into the English vernacular in June of 2006, when the company name
itself, “Google,” was recognized as a transitive verb by the Oxford English Dictionary.
The story of Google’s founding and growth is fascinating for any number of
reasons. The name was derived from the number googol, which is 1 followed by
100 zeros. This name was picked to signify the massive amount of information the
service was designed to organize. The founders met in 1995, when one (Brin), a
second-year graduate student at Stanford, was assigned to host the other (Page), a
prospective graduate student, during a visit to the Stanford campus. The chemistry
was apparent almost immediately, as the two talked, argued and debated through-
out their first meeting. The pair ran their newly created search engine out of their
dorm rooms initially and, by 1998, their program was handling over 10,000 search
requests per day. Since then, the growth of the company has been nothing short of
phenomenal. The initial public offering or IPO in 2004 generated approximately
$1.9 billion. Twenty years later, Google’s market value was nearly $700 billion.
Even famed investor Warren Buffet has stated that he made a mistake by not seeing
the value and investing in Google early on. Indeed, an investor who purchased just
a dozen shares of Google stock (worth about $1,000) at the time of the IPO, would
have seen that investment grow to approximately $25,000 today.
But the lessons of Google’s success are really less about these fascinating histori-
cal details than they are about a consistent strategy for the company and the mar-
ket and the relentless pursuit of opportunities to execute, learn, and adapt. At its
essence, the strategy for Google has been, and continues to be, making the internet
increasingly accessible to everyone. In so doing, it has been able to drive revenues
and profits, by driving visitors to websites and platforms on which it sells ads. And
Google has driven a lot of revenue. In 2004, Google’s revenues were $3.2 billion;
by 2017 that number had grown to $110 billion. Of course, in 2017, Google was
merely one subsidiary of a recently created parent company named Alphabet. But
the majority of Alphabet’s revenues and earnings continued to come from Google
and from the basic strategy of organizing and providing access to information, so as
to drive traffic, clicks, and advertising.
The challenging part is that few customers know, or care, which search engine
they use, how any particular search engine works, or even how their use of search is
monetized into revenue by the provider. Customers just want information, whether
that information is an answer to a specific question, a response to a curiosity, or sim-
ply something to entertain an open or restless mind. People want information and
Google’s success depends upon those people using Google’s platforms to find it. So,
the people at Google work every day to improve the efficiency and breadth of their
search engine. As a practical matter, that means continuously tweaking, expand-
ing, and refining their algorithms, so that every query returns the very answer the
An Introduction to Strategic Management 3
customer wants, even when that customer isn’t sure what he or she is expecting.
Google also works to make sure that, whenever or wherever customer needs arise,
there is a Google platform available and accessible to facilitate the search. So, in
addition to its core search engine, Google has developed a range of related products,
things like YouTube, Gmail, Chrome, Maps, Translate, Android, Docs, Calendar,
Photos, Files, and Scholar. Google has even invested in hardware, in the form of
the Pixel phone, Pixelbook computer, and Google wireless wi-fi routers. What ties
these products together is that they all provide accessibility to people who need
information. By connecting these different products and platforms to Google’s con-
stantly adapting and evolving search algorithms, Google provides users with usable
information quickly and efficiently. What Google intends with all this, and what
has indeed happened, is that millions and millions of users around the world have
simply found Google to be the best, or at least the most convenient and accessible,
alternative when seeking information. Hence, Google achieves billions and billions
of user interactions each day. And each user interaction is an opportunity to gener-
ate revenue.
But what does it mean to say that users have found Google to be the best alterna-
tive? Well, that really depends upon the customer. Because every customer is dif-
ferent, each will naturally want, value, and seek different things. Some will choose
based on the speed of the response, the variety of the responses, or perhaps the
relevance in relations to their queries. To others though, the best may mean merely
the simplest and the most accessible. So, when using a Google device, they might
simply accept the default browser, Google Chrome, as the best. They might find
Google Maps the easiest to use and so simply choose to use it, even if they are
using an Apple device. Having created a Google account, to store files or photos,
they might also choose to have a Gmail account, for reasons of convenience. What
it means to be the best will vary from person to person and from user to user. So,
Google must invest heavily not only in the underlying technological infrastruc-
ture to manage and deliver information but also in the broad array of platforms
necessary to satisfy customers of all types, regardless of the information they are
searching for and the way they connect in trying to reach it. What is more, Google
must do all of this in the face of competitors who are constantly introducing new
products and services designed to lure away its customers. It must do what it does
in the face of changing customer tastes and preferences; in just a few short years,
customers have shifted from stationary computers to mobile devices. The next
shift could radically alter the way users search for information. So, Google has to
be relentless in finding ways to remain the best, across every meaningful dimension,
lest it lose users and so lose its revenue stream.
But Google’s sights are set on more than merely today’s customers and today’s
revenue streams. What happens to Google’s revenues when advertisers are no lon-
ger willing to pay for visits and clicks? Could such a thing ever happen? Well, ask
someone in the encyclopedia business about how their business changed with the
proliferation of web-based search. Alternatively, ask someone involved in the man-

ufacture, sale, and use of LORAN (long range navigation) equipment how their
business was impacted by the evolution of satellite-based GPS (global position
system) technology or how the demand for cathode ray tubes changed with the
introduction of flat panel displays. Every product gives way, ultimately, to time and
to changes in technologies and tastes. Just as what was popular yesterday is often
no longer popular today, likewise will today’s leading products and services one day
be displaced by different, and better, alternatives. Google understands this and so
actively invests the profits from its current businesses in longer-term innovations
that will, one day, provide the profits for the future.
Many of these innovations are housed and nurtured in Alphabet’s Other Bets
division. In 2016, Alphabet made $4.4 billion (or 7% of total operating costs) worth
of other bets. What sorts of bets is Alphabet making and what sorts of subsidiary
companies are included under this new holding company? One example would be
Google Fiber, which provides super high-speed internet connectivity in about 20
different cities around the U.S. Another example would be Google Ventures, which
makes early-stage investments in start-up companies across a range of industries,
including agriculture, robotics, and life sciences. There is Capital G, which is also
an investment company. But whereas Google Ventures invests in early-stage firms,
Capital G invests in more established but still young technology firms, with signifi-
cant growth potential. Capital G has made some impressive investments and its
portfolio includes firms like Lyft, Airbnb, credit karma, and glassdoor. There is Nest
Labs, the maker of home automation equipment, most notably the Nest program-
mable thermostat and smoke alarm. Calico Labs is a biotech research and develop-
ment company focused on aging and age-related diseases, and Verily Life Sciences is
a research firm focused on data science and healthcare, with the goal of organizing
the world’s health data so as to enable healthier lives. All of these “other bets” grew
out of, and were funded by the original Google, and together, they produced more
than $800 million in revenue in 2016.
But the value of these investments lies far beyond their immediate revenues.
Indeed, many will likely never prove profitable or sustainable in the long term.
Nevertheless, they have value in the here and now by creating options for the future.
With each of these innovative new initiatives, Google is learning about the future,
learning about emerging, new technologies, and learning about the evolving nature
of the competitive environment. As society evolves, as customer behavior changes,
as technologies, habits, fads, and fashions rise and fall, Google will be positioned to
adapt and respond because of its presence across these many other bets. Stated dif-
ferently, by investing in this wide range of nascent businesses and industries, Google
is purchasing options in the future. Some of those options may expire, unused. But
others may provide a valuable claim on exciting and profitable new opportunities.
So, the real story of Google’s impressive and ongoing success is partly about its
founders, its origins, its name, and its growth, but it is mostly about an innovative
strategy built on two fundamental truths. The first is that customers seek superior
value and Google has created an extraordinary array of coordinated products and
technologies designed to deliver value, through billions of transactions, so as to
generate billions in revenues and profits. The second truth is that nothing lasts for-
ever, not even a superior search engine supported by a brand hegemony as strong
as Google’s. Google understands this and so purposefully reinvests a portion of
its cash flow into things that will help it to learn, to adapt, and to one day create
another great success story.
A QUEST FOR PERFORMANCE
Reflect for a moment on this story and consider some questions. How is it that
some firms perform so well, while others struggle and fail? What is it about a firm
that allows it to thrive, despite ongoing challenges from its competitors and ever-
increasing demands from its customers? While the story of Google’s founding and
growth is a stirring example of a company that has had great success and that is
building for the future, what can be said of so many other companies that also
had their moment upon the stage but then failed to sustain that momentum and
ultimately disappeared? What separates a company like Google from so many
others like Compaq, AoL, Gateway, Blackberry, Sun Microsystems (Facebook is
now headquartered in the complex that formerly housed Sun), or NEXT, the
company founded and run by Steve Jobs, prior to his return to Apple? What
is it that enables the successful firms to perform well, to outpace their rivals
and to continue to provide good value and good returns to their customers and
stakeholders?
To use an old expression, performance really is the bottom line. Performance is
the crux of business and of business education. While different people will adopt
different definitions of performance and while some dimensions of performance
will matter more to some than to others, performance itself is still the standard by
which businesses are judged. Thus, the ability to understand, predict, and ultimately
direct a firm’s performance is the goal of every business student, every manager,
and every investor. Why do investors devote so much effort to the research and
study of specific firms and industries? The answer is that they want to distinguish
the exceptional opportunities from the marginal ones and the marginal ones from
the ones that offer little potential. Moreover, they want to do this all before these
differences become common knowledge in the marketplace.
Why do students study the principles of economics, marketing, management,
and finance? Why do managers invest in continuing education and why do they
commit resources to the research and analysis of their markets and competitors?
The answer in each case is that they want to build firms that perform well and that,
like Google, are considered outstanding among their peers.
STRATEGIC MANAGEMENT
This book is about that quest for performance. More specifically, this book is about
how the principles and practices of strategic management can be used to enable
better performance. Understood most simply, strategic management is a disci-
pline, like marketing or accounting, within the larger academic field of business
education. Over the years, strategic management has been defined in a number
of different ways (see Box 1.1). While these definitions reflect the different per-
spectives and approaches common during the period in which they were written,
they all describe a basic and fundamental phenomenon, the quest for superior
performance.
Box 1.1
Some Prominent Definitions of Strategic Management
■■ The definition of the long-run goals and objectives of an enterprise, and the adop-
tion of course of action and the allocation of resources necessary for carrying out
these goals.
Alfred Chandler (1962)
■■ Strategy is the pattern of objectives, purposes, or goals and the major policies and
plans for achieving these goals, stated in such a way as to define what business
the company is in or is to be in and the kind of company it is or is to be.
Kenneth Andrews (1987)
■■ The fundamental pattern of present and planned resource deployments and environ-
mental interactions that indicate how the organization will achieve its objectives.
Charles Hofer and Dan Schendel (1978)
■■ What business strategy is all about is, in a word, competitive advantage . . . the
sole purpose of strategic planning is to enable a company to gain, as efficiently
as possible, a sustainable edge over its competitors.
Kenichi Ohmae (1982)
■■ Strategy is a set of important decisions derived from a systematic decision making

process, conducted at the highest levels of the organization.
Daniel Gilbert et al. (1988)
■■ An integrated and coordinated set of commitments and actions designed to exploit

core competencies and gain competitive advantage.
Hoskisson et al. (2008)
The common thread running through these definitions is the creation of superior
value. Successful firms create superior value for their customers and are rewarded
by those customers with profitable sales. As illustrated in the story of Google, prof-
itable and valuable firms thrive by creating superior value for customers. Those
customers in return provide the firm with a stream of revenues and profits. Profits,
of course, mean jobs for managers and employees and returns for owners and inves-
tors. Good managers then understand that value creation is the key to performance,
and so they formulate and implement strategies designed to create value and to
capture the resulting profits. These managers understand one of the most funda-
mental realities in business: real value creation does not happen by accident; rather
it is the result of a purposeful and deliberate process.
Strategic management is that process by which managers integrate the firm’s
functions into streams and patterns of action designed to fit the constraints and
demands of the market. To the extent that it is done well, the process is beneficial
to the customers, owners, and stakeholders of the firm. Moreover, to the extent that
it drives the process of change and adaptation, it enables the firm to stay ahead of
the competition and continue to receive those benefits in the future.
BASIC DEFINITIONS
While Box 1.1 provides some prominent historical definitions, strategic manage-
ment is essentially a framework for analyzing the environment, for integrating the
firm’s activities, for learning and adapting to change, and for creating value in both
the present and into the future. As discussed later in the book, it is a framework
that can be used in every type of organization, large or small, new or old, domes-
tic or international, even for-profit and not-for-profit. It is a framework that can
be understood and applied systemically, with discrete components, logical steps,
and some simple but powerful models and tools. Beyond all of that though, it is a
framework that, when applied, becomes the process by which managers integrate
the firm’s functions into streams and patterns of action designed to identify and fit
the contours of a competitive and evolving environment. Finally, and to the extent
it is done well, strategic management is a process that creates value for customers,
for owners, and for all the stakeholders of a firm.
While the number of various and different definitions of strategy has been a
source of confusion to some, strategic management is, in its essence, a compa-
ny’s manifest plan of action for the ongoing creation and appropriation of value.
Strategic management is at once a short-term and a long-term process that involves
both plans and actions. It must reflect the immediate realities of the business envi-
ronment, yet it must also provide impetus for future direction and for innovation,
adaptation, and change. It is most often the province of top management, yet it
is also relevant and important to every employee, and everything an organization
does that affects its performance in the present or future is ultimately strategic.
Strategic management is, at once, a framework to guide thinking and a process to
guide action. Owing then to its complex and multifaceted nature, Henry Mintzberg
(1987) once described strategic management as being part plan, part ploy, part pat-
tern, part position, and part perspective.
Plan, Ploy, Pattern, Position, and Perspective
Strategic management is certainly part planning. For many years, virtually every
strategic management text made the point that the word strategy derives from a
Greek military term “strategia” and actually means a plan of action. Strategic man-
agement is a high-level cognitive activity, a forward-looking and visionary process
that incorporates understanding about the environment, the firm, and the ongoing
developments and changes in each. It is the process by which threats and oppor-
tunities are identified, analyzed, and accommodated. It is willful and intentional,
analytical and creative. Indeed, planning is fundamental to strategic management.
Of course, plans are not always all that they appear to be. They are sometimes
more significant for their symbolic value than for their practical value. They are
sometimes designed to signal capabilities rather than intentions. They are sometimes
intended to lure a competitor into a poor decision or to create an illusion of strength
to mask some vulnerability. In this sense, strategies are as much ploys as they are
plans. A ploy is simply an article of deception, used to gain an advantage over a
competitor, but it can be a powerful and substantial component of a firm’s strategy.
Strategic management can also be understood as a pattern. Some strategies are
best understood in terms of the interaction of the firm with its environment. These
interactions follow a template or pattern that becomes the manifest strategy. That
pattern is instilled throughout the company and promoted in the marketplace as
the key to its value proposition. The term business model has grown popular in
recent years and refers to the pattern of connections among a firm, its customers,
its suppliers, and its partners (Amit & Zott, 2001). A business model then is the
pattern of action that defines a firm’s strategy. Think about a company like Google
and contrast it against other successful companies like SAP, Oracle, and Cisco. All
are considered technology companies. Yet, each has a different business model.
Each offers different products and goes to market in different ways. As such, each
follows a particular pattern in how they do business. It is this pattern that is seen by
the marketplace and experienced by customers and employees, and it is this pattern
that is understood to be the firm’s realized strategy.
But strategic management is also about positioning the firm within an attractive
and manageable environment. Granted, such positioning may result from an inten-
tional plan or emerge from a natural pattern. Still, such positions often become
the focus and substance of the firm’s strategy. Many firms seek positions that allow
them to avoid competition. Regulated monopolies, for instance, are protected from
competition. While they are constrained by their environments, their strategy is
also a function of their protected position. Even in competitive environments, a
large portion of a firm’s strategy is dictated by the realities of its surroundings. Thus,
positioning is also a key component of strategic management.
Finally, strategic management is largely a matter of perspective. In other words,
firms differ in how they view the world and their place within it. Much as individu-
als have distinct personalities and characters, so too do firms have distinct perspec-
tives that govern what they do and how they believe they should do it. Some firms
are aggressive, while others are much less so. Some seek a leadership position in
their industries while others are content to merely make a good margin, away from
the spotlight. Some firms have a reputation for engineering excellence, while oth-
ers are known for their marketing prowess. This collective view of the firm itself,
of the environment, and of how the firm should operate within that environment
is a large part of strategy.
These five faces of strategy are at once all important and accurate. At the same time,
each is alone inadequate and incomplete. At any single moment in time, strategic man-
agement may involve them all. Strategy can be a unifying theme that gives coherence
and meaning. But coherence and meaning are worth little if they fail to fit the chang-
ing realities of the marketplace. Strategy certainly involves the setting of goals and
objectives. But goals and objectives are worth little without the skills and resources
needed to accomplish them. Strategy is a systematic process for guiding decisions and
actions. But a systematic process that cannot adapt and change will inevitably fail.
Thus, good strategic management must incorporate all five of these facets. Strategy is,
at once, part plan, part ploy, part pattern, part position, and part perspective.
Just as importantly, while strategy is all of these things, we should never forget
that the end result of strategy is action. Eloquent statements of intention and well-
conceived plans are certainly helpful, but day after day it is the action that gives
a strategy its life. Look at the mission statements of several high-performing and
low-performing firms. What you will find is a remarkable similarity across the two
groups, the differences in performance notwithstanding. Yet, look at the types of
actions these firms take and you will begin to see some significant differences. So,
at the end of the day, strategy is all about action; strategy is all about what the firm
really does to produce superior performance. And it is on that ability to produce
superior performance that the success of a strategy is ultimately judged.
COMPETITIVE ADVANTAGE
For all of their complexity and in all their various manifestations, all strategies seek
the same fundamental thing, competitive advantage. What is competitive advan-
tage? It is frequently defined as the ability of one firm to perform better than its
rivals. According to this definition, firms that perform above the average for their
industry have a competitive advantage. Although simple and popularly appealing,
this definition is not especially useful to a manager in practice. For instance, who
are the rivals against which a firm should be compared? Do they seek to accomplish
the same things and do they measure their performance in the same way, such that
a fair comparison is possible? What happens if a firm is publicly owned while its
rivals are privately owned; how do we compare their performance then? What is
the appropriate time period over which to measure and compare this performance?
Do we measure performance annually, quarterly, or in some other, more immediate
fashion? Does the fact that one firm had greater profit than another in the previous
year say anything about its competitive advantage in the here and now and into the
future? While the ability of one firm to perform better than its rivals is certainly a
reflection of competitive advantage, it is not a definition of competitive advantage
with much practical value. Indeed, in the case of some firms, thinking of competi-
tive advantage in this way has proven to be detrimental. Consider the stalwart IBM;
for many years IBM was a model of success, easily dominating all of the competitors
in its immediate industry. The problem was that the industry itself was changing
and the firms leading that change were little or nothing like IBM. Thus, the com-
petition that overtook IBM came from firms and technologies that did not appear
to be rivals, at least not at the time.
Competitive advantage also is frequently described in metaphorical terms, as
a sporting contest, for example. Defined in this way, competitive advantage is the
key asset or ability that allows one team to best another. While similarly popular
and appealing, this metaphor can also be misleading because it fails to capture two
important characteristics of business competition. The first is that the pursuit of
competitive advantage never ends. Consider history and you will find few, if any,
examples of perpetual success. Even the strongest firms, with the most dominant
positions, like Sears once had in retailing and consumer products, like General
Motors once had in automobiles, or like Research in Motion (Blackberry) once had
in cellular phones, all eventually faltered with the emergence of new technologies
and markets.
As history illustrates, unlike a sporting event, the competition in business is ongo-
ing and because the game never ends, there is never a final winner. Wal-Mart, for
instance, is still on top of the discount retailing business at present. However, history
teaches that sustaining this success, in the face of evolving technologies, demanding
customers, and emerging new competitors will be a daunting task. Today Amazon
and Dollar General both pose significant threats to Wal-Mart’s dominance, even
though neither operates in a way that is exactly like that of Wal-Mart. Consider also
the case of Netflix. Netflix itself was an industry disruptor, destroying the dominant
video-rental company Blockbuster, whose competitive advantage was based on real
estate and having a Blockbuster video rental store within a few minutes’ drive of
the majority of the U.S. population. Netflix undermined this competitive advantage
by mailing DVDs directly to customers’ homes, leading to a rapidly growing cus-

tomer base, strong revenue trends, and good profits and leading to the destruction
of Blockbuster which couldn’t adapt itself to this new business model.
However, it quickly became apparent that Netflix’s own business model was in
danger of becoming obsolete with evolving technologies, such as online streaming,
and the proliferation of alternative services for movie distribution threatened to
undermine its competitive advantage and its potential for growth. Netflix, how-
ever, was able to see this next evolution and let go of its original business model
to successfully adapt to this new method of distributing movies and furthermore
lead the shift in the focus of competition in the industry to the focus on original
content, creating demand not just for its ability to deliver entertainment content
produced by other firms but to produce compelling content of its own attracting
and tying consumers to its service over the alternative distribution offered by other
companies. Thus, every firm faces an ongoing stream of new threats and demands
that must be satisfied over and over again if they hope to establish and continue a
legacy of success.
The second area where the sporting contest metaphor falls short is that in a
sporting contest, the competitors are known. In business, however, new competi-
tors arise constantly and often in ways and areas that are unexpected. A competitive
advantage and the profits associated with it may actually attract new competitors.
Vanquish one and two more may arise to take its place. Schneider National is the
nation’s largest carrier of freight in the truckload, long-haul segment of the truck-
ing business. Yet, some of its most intense competition comes not from other large,
well-known carriers but from the hundreds of small, relatively unknown, indepen-
dent operators, who enter and exit different markets quickly. The same is true in
the music business, where a few large and well-known record labels like Polygram,
Universal, and EMI once dominated the industry. The real threat for each of these
firms though was not the challenge posed by other similar firms but the emer-
gence of new and independent labels, along with technologies that enabled artists
to produce, record, and distribute their own music directly. The challenge then is to
sustain competitive advantage in the face of the competition that is known today
and the competition that will become known tomorrow.
This discussion is meant to illustrate that while the term competitive advantage
is often used, it is rarely understood in its fullness. And that is a problem; if strate-
gic management is to be understood as the pursuit of competitive advantage, then
we must have a good sense of what competitive advantage really is. All strategic
management, throughout an organization, should point to competitive advantage
because competitive advantage is the key to performance. Every goal and objec-
tive, every intention and action, every plan, ploy, and perspective should ultimately
point toward competitive advantage, its development, maintenance, and expansion.
But what is competitive advantage? How can we define it so that it is practically
meaningful to all involved in a firm’s strategic management?
FOCUSING ON TRANSACTIONS
In his 1985 book entitled Competitive Advantage, Michael Porter defined this key
construct as growing “out of the value a firm is able to create for its buyers that
exceeds the firm’s cost of creating it.” While this definition says little about beating
competitors or winning games, it nevertheless captures the essence of competitive
advantage in a way that is especially insightful and practical. Defined in this way,
competitive advantage is achieved in some small measure every time a firm sells a
product or delivers a service at a profitable price.
Of course, a lot of firms sell a lot of products and deliver a lot of services at
profitable prices. How, then, can such a simple and common action be a measure
of competitive advantage? To understand, consider all that is implied by this simple
definition. If a customer is to buy a product or service, at a profitable price, it is
because she perceives some value in it, over and above its cost. For example, when
Coca-Cola sells a drink, the customer receives value in excess of the price that she
pays. That excess is what economists call consumer surplus. If the price she pays is
also more than Coca-Cola’s total cost in the product, then the company has earned
a surplus, called a profit. The transaction then yields value to both parties.
However, this profitable transaction did not occur in a vacuum. Rather, it
occurred in an open and competitive environment, where this customer had any
number of other options for her money. She could have chosen to buy a Pepsi or she
could have chosen to buy nothing at all, preferring to save her money. By choosing
a Coke, she also chose, simultaneously, not to buy from a competitor, at least not
in this particular instance. Thus, for the sake of this one purchase, Coca-Cola held
an advantage over the competition. This advantage is even more significant when
you consider that buyers have scarce resources. Even if our imaginary customer
was quite wealthy, her resources are still finite. Thus, she can never again spend the
same money that she just spent on that drink from Coca-Cola. She may make other
purchases, with other money, at some other points in the future. But for the sake of
this one transaction, the competition ended when she made her purchase, and the
advantage in that competition went to Coca-Cola.
Why should a text in strategic management begin with such a basic and granular
lesson in the economics of a single transaction? Because students, managers, and
professors alike are prone to neglect these basics in favor of other, more grandiose
issues. IPOs, globalization, emerging technologies, cost of capital, visionary leader-
ship, and intellectual property—these are the sorts of things that attract headlines
and attention. However, while these sorts of issues are certainly important, we
should never lose sight of the fact that strategic management is really about com-
petitive advantage and competitive advantage emerges when a firm is able to create
value for customers over and above its costs. What that really means is that strategic
management must begin with the customer and it is in the eye of the customer
that competitive advantage must be understood. After all, if customers do not buy
a firm’s products or services at prices that exceed the costs, then nothing else really
matters.
Moreover, it is through real and specific actions that firms actually create prod-
ucts and services that customers want and are willing to buy. Thus, competitive
advantage emerges and is sustained when a firm’s actions create products and
services that customers value over and above the available alternatives and over
and above the firm’s costs. This practical reality often gets lost amidst discussions
of esoteric terminology and advanced analytical procedures. So, it is important to
remember that the ultimate arbiter of strategic success is the customer. All else
aside, if customers do not buy the product or service in sufficient volume and at a
sufficient price, then the firm will not succeed. This is the very issue being discussed
and debated around the future of Tesla. Yes, the company has created some of the
“coolest” cars on the road, utilizing state-of-the-art battery and motor technologies.
Tesla cars are extraordinarily efficient, exquisitely designed, loaded with features,
and just plain fun to drive. But none of that will matter if Tesla cannot find a way
to sell a sufficient number of cars at sufficiently high prices to make and sustain a
profit, without the benefit of subsidies. Can Tesla turn cutting-edge engineering and
cool design into a revenue stream that is consistently greater than its costs? Every
successful strategy must begin with the intent of creating value through individual
and specific transactions with individual and specific customers.
The relationships depicted in Figure 1.1 form the basis of competitive advantage
and so lie at the very heart of strategic success. For instance, while Harley-Davidson
makes and sells motorcycles and motorcycle-related products, the strategy of
Customer
Value
Consumer Surplus This area represents

the value created in
each profitable sale
Selling Price and consists of both
profit for the firm
and surplus for the
Profit
customer.
Total Cost
to the Firm
This area represents
the firm’s total costs
in presenting the
product or service for
sale. To create new
value, the firm must
cover its total costs.
FIGURE 1.1 Competitive Advantage as Value to the Customer

Harley-Davidson is to create value for its consumers by defining an image and a

lifestyle of a Harley owner, which differentiates Harley from any other competitive
product. While BMW, Honda, and many others make motorcycles of similar, and
perhaps in some dimensions even better, qualities and capabilities, Harley owners
for the most part don’t consider these other brands when making their purchase as
they are buying into the lifestyle and persona of Harley-Davidson as much as they
are buying a motorcycle. This Harley-Davidson lifestyle creates a large consumer
surplus for the consumer, enabling Harley-Davidson to charge premium prices for
their motorcycles and motorcycle-related products, which in turn creates profit
for the company. Putting this in the context of Figure 1.1, this means that Harley-
Davidson is providing products and services that customers value over and above
the available alternatives and over and above Harley-Davidson’s costs; implied in
this are two fundamental requirements. First, Harley-Davidson must understand
the competitive environment in which its products and services will be seen and
evaluated. Second, Harley-Davidson must understand its own capabilities for sup-
plying what customers will want.
Understanding the competitive environment involves asking questions like, who
are the target customers and what is likely to motivate their purchases? What alter-
natives exist to buying from Harley-Davidson and what do those alternatives offer?
What events or trends in the marketplace or in society might affect the willingness
of those customers to buy a Harley in the future? These questions are essential
to understanding how customers will perceive the product in the context of the
competitive landscape and lead Harley-Davidson to realize that they are “more
than just a motorcycle” to their customers, such that their Harley-Davidson often
becomes a central part of the identity of their customers who align themselves with
the brand. As such, Harley-Davidson’s managers spend their time not just on every-
thing that goes into manufacturing motorcycles but also on nurturing the lifestyle
aspect of Harley ownership, through things such cultivating the Harley Owners
Group, or H.O.G., and organizing events where H.O.G.s can gather and share expe-
riences on and about their Harley-Davidson. Indeed, so focused is Harley-Davidson
on their customers rather than on simply the manufacture of the bikes themselves
that the first key objective in their strategic plan for 2027 is to “Build 2 Million
New Riders.” Not motorcycles, but riders. As they state in this objective, “It’s build-
ing new riders that will keep us cruising for another century and beyond, and our
efforts are squarely on inspiring new riders who will one day carry the torch for our
sport and our brand.”1
But the managers at Harley must also know something about their own firm.
They must know how to produce products that the customers want. They must
understand the available technologies and the conditions of the labor market and
they must be able to make informed choices about how best to operate. They must
understand the relative costs associated with different levels and means of produc-
tion and they must plan for the evolution and adaptation of their own processes
that will necessarily have to occur as the market changes. Finally, they must bring
all of this information together in such a way that it yields action and so leads indi-
vidual customers, acting of their own volition and in their own best interests, to
pay a price greater than Harley-Davidson’s total costs. When that happens, Harley-
Davidson will have competitive advantage. The challenge then is simply to do it all
over, again and again and again, day after day and year after year.
Competitive advantage then is best defined as the reason a customer pays a par-
ticular firm a profitable price for its products or services. Thought about differently,
competitive advantage answers the question, what makes a firm’s product or ser-
vice advantageous relative to the other options? Going forward then, competitive
advantage is what will make a firm’s service or product advantageous relative to the
options that will emerge in the future. By focusing on competitive advantage, at this
level, strategic management concerns itself with the customer and the competitive
environment within which he or she makes decisions. Alternative suppliers, relative
prices, new technologies, reputations for quality and service, these are all parts of
the competitive landscape. As such, they are all parts of strategy. But, by focusing
on competitive advantage at this level, strategic management also concerns itself
with the firm, its capabilities, and its resources. Technologies, inventory, engineering
and marketing talent, these are all areas in which a firm may exploit a capability to
gain advantage. As such, they too are all a part of strategy.
Competitive advantage then is about creating value in specific transactions, for
specific customers, in a specific competitive context. Understood in this sense, com-
petitive advantage is not simply a state of being. Rather, it is a distinction that has
to be earned over and over again, with each transaction. It is defined less by a firm’s
relationship with its competitors than by a firm’s relationship with its customers.
It is the source of a firm’s success and the target of a firm’s competitors. As such,
it must be constantly developed, nurtured, and grown, because when left alone it
will naturally erode and decline.
STRENGTHS, WEAKNESSES, OPPORTUNITIES,

AND THREATS
One of the most commonly recognized terms in strategic management is SWOT.

The SWOT framework derives its name from two basic issues that every strategy
must address. As explained earlier, competitive advantage occurs when customers
view a product or service as being sufficiently valuable that they actually pay a
profitable price for it. To understand this transaction, we must understand the com-
petitive environment in which it takes place. We must also understand the capabili-
ties and resources required to produce the product or service. These facets of the
transaction, the external and the internal, are represented by the letters of SWOT.
The S and W represent the internal analysis of the firm, its various Strengths and
Weaknesses; the O and T represent the external analysis of the environment, its
various Opportunities and its Threats.
There will be much more to say about each of these later. For now, it is sufficient
to know two things. First, a SWOT analysis is merely a tool for identifying some
key issues. Simple lists of strengths and weaknesses, opportunities and threats, will
provide few insights from which to build meaningful strategy. Yet, such lists are an
important part of understanding the conditions of the environment and the capa-
bilities of the firm. Second, neither the environmental nor the organizational side of
the analysis alone can tell the whole story of strategic success. Great products and
services do not exist in a vacuum. They are attractive only in a particular context,
in relation to specific customers and specific alternatives. Good strategy involves
analysis and understanding of both the firm’s capabilities and resources and its
competitive environment.
It is important to understand this from the outset as two major branches of stra-
tegic management theory have evolved to address these two different phenomena.
Industrial organization economics addresses the environment and the competitive
landscape of the firm. The resource-based view addresses the firm, its capabilities,
and its resources. Both are necessary, but alone neither is sufficient to fully explain
competitive advantage. As such, neither is, alone, sufficient to guide strategy. Rather,
good strategic management must be informed by and incorporate both.
When done well, then, strategic management is a framework for managing the
interaction of the firm, with all of its weaknesses and strengths, with its environ-
ment, with all of its threats and opportunities. Competitive advantage emerges at
this intersection of the two. As Hofer and Schendel (1978) define it (see Box 1.1),
strategic management is about the interaction of the firm with its environment,
with the intent of creating an ongoing stream of products and services that custom-
ers will value and purchase at prices in excess of the firm’s costs.
COMPETITIVE ADVANTAGE AND FIRM PERFORMANCE
In the strictest sense, management’s ultimate responsibility is to enhance the value

of the firm. But what does it really mean to enhance the value of the firm? To
understand this concept, it is important to understand that the value of the firm, at
any moment in time, is a reflection of expected earnings. Coca-Cola is a valuable
company because the strength of its brand, the size of its market, and the record
of its performance lead people to believe that the likelihood of future earnings is
great. Because owning a portion of this company means owning a claim on a por-
tion of those earnings, increases in expected earnings translate into increases in the
value of the firm itself. The same is true of decreases in expected earnings. When
the market expects that a firm’s earnings will decline, the value of that firm declines
as well. When Twitter announced a drop of 1 million users in the summer of 2018,
its stock price plunged by more than 20%. That translates into $5 billion in market
capitalization that was lost because of the drop in expected revenues. While inves-
tors might not have understood the intricacies of all Twitter’s efforts to eliminate
fake or offensive accounts or to provide greater user security, they did understand
that a significant reduction in users was likely to translate into lost revenue and
increased losses that would diminish the value of the company. And so they sold
their stock, hoping to cash out before that value declined.
Even for new firms, which have not yet had any earnings, the same basic logic
applies. Back in 2012, the highly anticipated initial public offering of Facebook
valued the firm at about $104 billion. It was one of the largest IPOs ever, and the
valuation reflected the expectation of future earnings at that point in time. Given
Facebook’s enormous user base, strong brand name, and nimble technology, inves-
tors believed future earnings would be sufficient to justify the enormous market
capitalization. In essence, these investors were betting that Facebook’s resources,
talent, brand strength, and effort would lead to competitive advantage and that
competitive advantage would lead to profits sufficient to provide a good return on
the capital invested. Now viewed through the lens of retrospect, those assessments
appear to have been correct and Facebook has proven capable of driving strong
revenues and profits through its site and business model. Indeed, an investment
of $1,000 (about 26 shares at the IPO price of $38) would have been worth over
$5,000 in the summer of 2019.
Competitive advantage relates directly to firm value because it relates directly
to earnings. Firms with a strong competitive advantage are in a position to earn
more than their competitors and, as a consequence, to be more valuable. Of course,
earnings can be affected by any number of different things. A new competitor may
arise, imitating a firm’s product and thereby reducing its share of the market. A new
technology may emerge that makes your service less attractive, thereby making it
more difficult to sell. Customer tastes may change, leaving a firm with a product
that was once highly sought after but that now is all but forgotten. Demographic
patterns may shift, changing the size and nature of the target market. An employee
could act negligently, causing harm to others and exposing a firm to litigation and
penalties. Someone could manipulate the numbers to make the firm appear more
profitable, only to be found out and to undermine the trust of investors, increasing
the firm’s cost of capital. In each example, these various occurrences would reduce
the expectation of future earnings and so reduce the value of the firm.
Similar scenarios could be imagined where changes within the firm or the envi-
ronment would enhance the expectation of future earnings and so enhance the
value of the firm. A firm could create a new process, allowing it to make a product
more inexpensive and so sell it more profitably. A firm could reorganize its board
to alleviate concerns that future earnings could be threatened by litigation or poor
oversight. A firm could expand into a new market, increasing its revenues and
economies of scale. Shifts in demographic patterns or customer tastes could make
a firm’s products or services much more popular and attractive than they had been
heretofore. These sorts of changes would all increase the expectation of future
earnings, thereby increasing the value of the firm.
By focusing on competitive advantage, strategic management is concerned with
all of these potentialities and then some. As explained earlier, strategic manage-
ment is concerned with the environment and how changes within it could create
opportunities or threats. Strategic management is concerned with the firm itself
and with the various strengths and weaknesses of its products, processes, people,
and technology. Finally, strategic management is concerned with the firm’s posi-
tion within society and how the firm itself is viewed and evaluated by customers,
investors, regulators, and employees, to name just a few of the stakeholders in the
firm. Because the ultimate responsibility of management is to enhance the value
of the firm, strategic management lies at the heart of managerial responsibility.
The value of the firm is a reflection of current and expected earnings, and both
of these are a reflection of competitive advantage. Focusing on value creation and
on competitive advantage then provides a sort of strategic balanced scorecard for
gauging performance in the day to day. Deliver these two things, and all the other
measures of performance that are so frequently tracked and reported will take care
of themselves. Thus, the development, maintenance, and ongoing cultivation of
competitive advantage is the ultimate responsibility of strategic management and
the underlying key to firm performance.
THE END OF THE BEGINNING
As you go through this book, you will encounter a number of different topics,
frameworks, models, and examples. However, it is important to remember that all
of these will point in some way towards competitive advantage. It is also impor-
tant to remember that competitive advantage results from action. Each framework,
each model, each analytical tool should have some implication for action. As you
read, stop frequently and ask yourself, how can this impact action? What will actu-
ally change, within the firm or between the firm and its customers, as a result of
this concept, analytical tool, or way of thinking? How will approaching things in a
particular fashion create new value or help the firm to sustain the value it is cur-
rently creating? These are the sorts of questions that demand answers. Too often
strategic management is presented in an abstract fashion, as a science or a field
of study, interesting in its own right but far removed from the practical details
of managerial life. That is unfortunate because strategic management is the most
practical of disciplines. It is the framework through which all of the functions of an
organization are integrated; it is the underlying theory of how a firm will pursue
superior performance. In that sense, strategic management is the key to firm success
and the capstone of business education.
The chapters that follow will present strategic management in a systematic fash-
ion, starting with Chapter 2, which will look in detail at organizational perfor-
mance and the various definitional and measurement problems associated with
it. Performance is certainly the crux of business. Yet, performance itself is a messy
concept, difficult to measure and paradoxical in nature. Chapter 3 will examine the
use and utility of different components of the strategic process, like the mission,
vision, and the processes of formulation and implementation. These so-called “tools
of the trade” are common parts of the business lexicon, yet their purpose is often
misunderstood and their importance often unrealized. Ultimately, their value is
linked inextricably to competitive advantage and to the firm’s ability to employ its
resources in a way that delivers value to the customer.
The next section, focused on an in-depth examination of the main tools of stra-
tegic analysis, begins with Chapter 4, which introduces environmental analysis
as a key step in the strategic process. Environmental analysis has both static and
dynamic elements and involves research into the contours of the marketplace.
Environmental analysis should yield insights into the opportunities and threats in
the near and the more distant future. To capitalize on those insights, firms must
understand their own strengths and weaknesses, and the analysis of the firm is the
subject of Chapter 5, which introduces the resource-based view and develops a
framework for analysis of the organization. The strategies that emerge from envi-
ronmental and organizational analyses are the subject of Chapter 6. These busi-
ness-level strategies are designed to produce competitive advantage, which is itself
manifested in transactions that lead to profitability.
Following the discussion of business-level strategy, Chapter 7 introduces the
concept of corporate-level strategy. Many firms pursue multiple business strategies
through multiple strategic business units. Corporate strategy is the process by which
all of those strategies are linked and organized in support of the firm as a whole.
All strategy though comes to life through the process of implementation, which is
the subject of Chapter 8. Implementation has two main implications: its immediate
effects on performance and its longer-term effects on the options available for the
future. Both are critical to long-term success and so are discussed in detail.
The final section examines some special topics for strategic managers. As firms
are faced with dynamic environments and the pace of change continues to accel-
erate, managers need to not only focus on the immediate day-to-day actions that
generate competitive advantage but also be thinking about those factors that will
shape their environment in the future, potentially endangering the sustainability
of generating that competitive advantage. Chapter 9 looks specifically at major dis-
ruptive megatrends that have shaped and that will continue to shape the contours
of the business world and society at large. Considering these megatrends, and how
they will affect a firm’s environment, helps managers prepare the firm to adjust and
pivot its strategy to take advantage of the opportunities provided by the disruptive
effects of these trends and sustain competitive advantage over the long term.
Finally, our concluding Chapter 10 looks briefly at a range of topics such as

entrepreneurship, internationalization, leadership, and corporate governance. It also
recognizes that, ultimately, strategic management is a human process, subject to the
same limitations and biases of ordinary human behavior. Good strategic manage-
ment acknowledges this and takes it into account in the design of organizational
structures and systems and the ongoing management of strategic processes. In this
context, leadership, governance, and ethics are not tangential topics but rather
essential elements to strategic management.
As noted, this is more than just one more book about strategic management; this
is a book on strategic management. All of the topics you encounter in it, from those
introduced in this first chapter to those covered in the final chapter, are meaningful
because of their implications for value creation and firm performance. Ultimately,
managers are charged with protecting, building, and leveraging the worth of their
organizations. And strategic management, despite all of its popularity and academic
rigor, is merely a tool for meeting that challenge. Learn it and learn to use effec-
tively and you will be a better and more valuable manager.
KEY TERMS
Balanced scorecard is the name given to a performance measurement framework

developed by Robert Kaplan and David Norton. The framework employs a variety
of different strategic and non-financial performance metrics, in combination with
traditional financial measures, to produce a single “balanced” measure of perfor-
mance and condition.
Business model is a term used to describe the template or pattern of how a firm
interacts with its customers, suppliers, and partners.
Competitive advantage is the reason a customer chooses to transact with one firm
over another. Understood in this way, competitive advantage is episodic and best
understood through the eyes of the customer.
Consumer surplus is the gap between the value a customer places on a good or
service and the price that he or she pays. In essence, it is the difference between the
actual price and the price a customer would have been willing to pay.
Industrial organization (IO) economics is an area, within the larger field of eco-
nomics, concerned with the competitive forces that affect firm behavior and per-
formance. Established by the work of Chamberlin, Bain, and Mason, IO economics
proposes that firm performance is a function of strategic conduct, which is a func-
tion of industry structure.
Resource-based view (RBV) holds that competitive advantage, and the economic
rents or profits associated with it, is a function of each firm’s unique and valuable
bundle of resources. Such advantages can persist as long as these resource bundles
are not effectively imitated or substituted.
QUESTIONS FOR REVIEW
1. Why study strategic management?

2. What the common theme that runs through the most respected definitions of
strategic management?
3. How can strategy be at once part plan, ploy, pattern, position, and perspective?
4. What is the connection between value creation and competitive advantage?
5. What does it mean to say that competitive advantage must be understood
through the “eye of the customer”?
6. What is the connection among strategic management, competitive advantage,
and overall firm performance?
NOTE
1 www.harley-davidson.com/us/en/about-us/company.html
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“This may be the best strategic management textbook that I have seen in recent

A focus on creating and sustaining a flow of profitable transactions, in other words,

Allen C. Amason is Professor of Management and Dean of the Parker College of

Allen C. Amason and Andrew Ward

Accompanying website: www.strategicmanagement.business

Allen C. Amason’s Dedication: Writing a book takes a significant

Andrew Ward’s Dedication: Writing a book that attempts to summarize

About the Authors xvii

1 An Introduction to Strategic Management 1

2 Understanding Organizational Performance 22

3 Tools of the Trade 50

4 Analyzing the Environment 83

5 Organizational Strengths and Weaknesses: Analyzing a Firm’s

6 Strategies for Competitive Advantage 148

8 Implementation, Adaptation and Learning 202

10 Issues of Context, Setting and Application 263

Accompanying website: www.strategicmanagement.business

About the Authors xvii

1 An Introduction to Strategic Management 1

Google: A Story of Great Success 1

2 Understanding Organizational Performance 22

Performance From a Variety of Perspectives 34

3 Tools of the Trade 50

The Tools of the Trade 50

4 Analyzing the Environment 83

Defining the Business and the Environment 85

5 Organizational Strengths and Weaknesses:

6 Strategies for Competitive Advantage 148

Home Depot and Lowe’s 148

7 Corporate and Multi-Business Unit Strategy 175

Google and the Formation of Alphabet Inc. 176

8 Implementation, Adaptation, and Learning 202

Billions Served 202

9 Disruptive Megatrends 238

The Demise of Toys “R” Us 238

10 Issues of Context, Setting, and Application 263

A Broad Value Proposition 264

Corporate Governance 291

Accompanying website: www.strategicmanagement.business

Allen C. Amason, Ph.D. is Dean of the Parker College of Business at Georgia

Dr. Ward conducts research on issues related to corporate governance including

We are extremely grateful to Munzer Abu-ghosh for his extensive research

Welcome to the Second Edition of Strategic Management: From Theory to Practice.

issues in entrepreneurship and international business. It also connects some of the

Google: A Story of Great Success 1

A Quest for Performance 5

Strengths, Weaknesses, Opportunities, and Threats 15

Competitive Advantage and Firm Performance 16

The End of the Beginning 18

GOOGLE: A STORY OF GREAT SUCCESS

proliferation of web-based search. Alternatively, ask someone involved in the man-

A QUEST FOR PERFORMANCE

■■ Strategy is a set of important decisions derived from a systematic decision making

■■ An integrated and coordinated set of commitments and actions designed to exploit

Plan, Ploy, Pattern, Position, and Perspective

by mailing DVDs directly to customers’ homes, leading to a rapidly growing cus-

Consumer Surplus This area represents

FIGURE 1.1 Competitive Advantage as Value to the Customer

Harley-Davidson is to create value for its consumers by defining an image and a

About the Authors xvii

1 An Introduction to Strategic Management 1

2 Understanding Organizational Performance 22

3 Tools of the Trade 50

4 Analyzing the Environment 83

6 Strategies for Competitive Advantage 148

8 Implementation, Adaptation and Learning 202

10 Issues of Context, Setting and Application 263

About the Authors xvii

1 An Introduction to Strategic Management 1

Google: A Story of Great Success 1

2 Understanding Organizational Performance 22

Performance From a Variety of Perspectives 34

3 Tools of the Trade 50

The Tools of the Trade 50

4 Analyzing the Environment 83

Defining the Business and the Environment 85

6 Strategies for Competitive Advantage 148

Home Depot and Lowe’s 148

7 Corporate and Multi-Business Unit Strategy 175

Google and the Formation of Alphabet Inc. 176

8 Implementation, Adaptation, and Learning 202

Billions Served 202

9 Disruptive Megatrends 238

The Demise of Toys “R” Us 238

10 Issues of Context, Setting, and Application 263

A Broad Value Proposition 264

Corporate Governance 291

Google: A Story of Great Success 1

A Quest for Performance 5

Strengths, Weaknesses, Opportunities, and Threats 15

Competitive Advantage and Firm Performance 16

The End of the Beginning 18