The second component of the strategic management process is an analysis of the organization’s operating environment. The essential purpose of this is to identify strategic opportunities and threats within the organization’s operating environment that will affect how it pursues its mission.

An important first step in the process of formulating a mission is to come up with a definition of the organization's business.

Company can be measured by the increase in net profit over time. A company can grow its profits if it sells products in markets that are growing rapidly, gains market share from rivals, increases the amount it sells to existing customers, expands overseas, or diversifies profitably into new lines of business.

The definition answers these questions: "What is our business? What will it be? What should it be?" The responses to these questions guide the formulation of the mission.

provides several different kinds of goods or services, it often duplicates these functions and creates a series of self-contained divisions (each of which contains its own set of functions) to manage each different good or service.

the third component of the strategic planning process, focuses on reviewing the resources, capabilities, and competencies of a company. The goal is to identify the strengths and weaknesses of the company.

A company is said to have a ____________ over its rivals when its profitability is greater than the average profitability and profit growth of other companies competing for the same set of customers. The higher its profitability relative to rivals, the greater its competitive advantage will be.

is a set of related actions that managers take to increase their company’s performance. For most, if not all, companies, achieving superior performance relative to rivals is the ultimate challenge. If a company’s strategies result in superior performance, it is said to have a competitive advantage.

mistake that some companies have made in constructing their strategic planning process has been to treat planning exclusively as a top-management responsibility. This “ivory tower” approach can result in strategic plans formulated in a vacuum by top managers who have little understanding or appreciation of current operating realities. Consequently, top managers may formulate strategies that do more harm than good. Correcting the ivory tower approach to planning requires recognizing that successful strategic planning encompasses managers at all levels of the corporation. Much of the best planning can and should be done by business and functional managers who are closest to the facts; in other words, planning should be decentralized.

who bear responsibility for the overall performance of the company or for one of its major self-contained subunits or divisions, and

A business model encompasses the totality of how a company will:

ROIC

THE STRATEGY-MAKING PROCESS

Capital that cannot be recovered if a company fails and goes bankrupt. Shareholders will not provide risk capital unless they believe that managers are committed to pursuing strategies that provide a good return on their capital investment.

sphere of responsibility is generally confined to one organizational activity, whereas general managers oversee the operation of an entire company or division. Although they are not responsible for the overall performance of the organization, this managers nevertheless have a major strategic role: to develop functional strategies in their areas that help fulfill the strategic objectives set by business- and corporate-level general managers. An equally great responsibility for managers at the operational level is strategy implementation: the execution of corporate- and businesslevel plans.

who are responsible for supervising a particular function, that is, a task, activity, or operation, such as accounting, marketing, research and development (R&D), information technology, or logistics.

The legal owners of a corporation, and their shares therefore represent a claim on the profits generated by a company. Thus, managers have an obligation to invest those profits in ways that maximize shareholder value. Managers must behave in a legal, ethical, and socially responsible manner while working to maximize shareholder value.

the head of the division. The strategic role of these managers is to translate the general statements of direction and intent that come from the corporate level into concrete strategies for individual businesses.

are concerned with strategies that are specific to a particular business.

The overriding concern of general managers is the success of the whole company or the divisions under their direction; they are responsible for deciding how to create a competitive advantage and achieve high profitability with the resources and capital they have at their disposal.

In most companies, there are two primary types of managers:

involves formulating plans that are based upon “what-if” scenarios about the future. In the typical scenario-planning exercise, some scenarios are optimistic and some are pessimistic. Teams of managers are asked to develop specific strategies to cope with each scenario. A set of indicators is chosen as signposts to track trends and identify the probability that any particular scenario is coming to pass. The idea is to allow managers to understand the dynamic and complex nature of their environment, to think through problems in a strategic fashion, and to generate a range of strategic options that might be pursued under different circumstances.

is a kind of mental model, or gestalt, of how the various strategies and capital investments a company makes should fit together to generate above-average profitability and profit growth.

The corporate level of management consists:

are responsible for the specific business functions or operations (human resources, purchasing, product development, customer service, etc.) that constitute a company or one of its divisions.

The next component of strategic thinking requires the generation of a series of strategic alternatives, or choices of future strategies to pursue, given the company’s internal strengths and weaknesses and its external opportunities and threats. The comparison of strengths, weaknesses, opportunities, and threats is normally referred to as a SWOT analysis. The central purpose is to identify the strategies to exploit external opportunities, counter threats, build on and protect company strengths, and eradicate weaknesses.

These individuals occupy the apex of decision making within the organization

is the principal general manager. In consultation with other senior executives, the role of corporate-level managers is to oversee the development of strategies for the whole organization.

Describes what the company does.

The return that it makes on the capital invested in the enterprise. The return on invested capital (ROIC) that a company earns is defined as its net profit over the capital invested in the firm (profit/capital invested).

s managers’ conception of how the set of strategies their company pursues should work together as a congruent whole, enabling the company to gain a competitive advantage and achieve superior profitability and profit growth.

also provide a link between the people who oversee the strategic development of a firm and those who own it (the shareholders). particularly the CEO, can be viewed as the agents of shareholders. It is their responsibility to ensure that the corporate and business strategies that the company pursues are consistent with maximizing profitability and profit growth. If they are not, then the CEO is likely to be called to account by the shareholders.

are the linchpin in the strategy-making process. It is individual managers who must take responsibility for formulating strategies to attain a competitive advantage and for putting those strategies into effect. They must lead the strategy-making process.

Once managers have chosen a set of congruent strategies to achieve a competitive advantage and increase performance, managers must put those strategies into action: strategy has to be implemented. Strategy implementation involves taking actions at the functional, business, and corporate levels to execute a strategic plan. Implementation can include, for example, putting quality improvement programs into place, changing the way a product is designed, positioning the product differently in the marketplace, segmenting the marketing and offering different versions of the product to different consumer groups, implementing price increases or decreases, expanding through mergers and acquisitions, or downsizing the company by closing down or selling off parts of the company.

The returns that shareholders earn from purchasing shares in a company. These returns come from two sources:

is a self-contained division (with its own functions—for example, finance, purchasing, production, and marketing departments) that provides a product or service for a particular market.

is a rough-and-tumble process in which only the most efficient and effective companies win out. It is a race without end.

collection of functions or departments that work together to bring a particular good or service to the market.

A company has a _________ when its strategies enable it to maintain aboveaverage profitability for a number of years.

are concerned with strategies that span individual businesses,