Summary of Chapter



Summary of Chapter

1. A strategy is an action that a company takes to attain one or more of its goals.

2. The major goal of companies is to maximize the returns that shareholders get from holding shares in the company. To maximize shareholder value, managers must pursue strategies that result in high and sustained profitability and also in profit growth.

3. The profitability of a company can be measured by the return that it makes on the capital invested in the enterprise. The profit growth of a company can be measured by the growth in earnings per share. Profitability and profit growth are determined by the strategies managers adopt.

4. A company has a competitive advantage over its rivals when it is more profitable than the average for all firms in its industry. It has a sustained competitive advantage when it is able to maintain above-average profitability over a number of years. In general, a company with a competitive advantage will grow its profits more rapidly than rivals.

5. General managers are responsible for the overall performance of the organization or for one of its major self-contained divisions. Their overriding strategic concern is for the health of the total organization under their direction.

6. Functional managers are responsible for a particular business function or operation. Although they lack general management responsibilities, they play a very important strategic role.

7. Formal strategic planning models stress that an organization’s strategy is the outcome of a rational planning process.

8. The major components of the strategic management process are defining the mission, vision, and major goals of the organization; analyzing the external and internal environments of the organization; choosing a business model and strategies that align an organization’s strengths and weaknesses with external environmental opportunities and threats; and adopting organizational structures and control systems to implement the organization’s chosen strategies.

9. Strategy can emerge from deep within an organization in the absence of formal plans as lower-level managers respond to unpredicted situations.

10. Strategic planning often fails because executives do not plan for uncertainty and because ivory tower planners lose touch with operating realities.

11. The fit approach to strategic planning has been criticized for focusing too much on the degree of fit between existing resources and current opportunities, and not enough on building new resources and capabilities to create and exploit future opportunities.

12. Strategic intent refers to an obsession with achieving an objective that stretches the company and requires it to build new resources and capabilities.

13. In spite of systematic planning, companies may adopt poor strategies if their decision-making processes are vulnerable to groupthink and if individual cognitive biases are allowed to intrude into the decision-making process.

14. Devil’s advocacy, dialectic inquiry, and the outside view are techniques for enhancing the effectiveness of strategic decision making.

15. Good leaders of the strategy-making process have a number of key attributes: vision, eloquence, and consistency; ability to craft a business model; commitment; being well informed; a willingness to delegate and empower; political astuteness; and emotional intelligence.

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