The value that a company creates is the sum of the outcomes of innumerable business decisions that its managers and staff take at every level, from choosing when to open the door to customers to deciding whether to acquire a new business. Successful strategic management encompasses all the tasks a company undertakes to achieve its strategic goals and create long-term value.
At the company’s senior-management level, the following tasks are particularly important for creating value:
- Overseeing and developing corporate and business unit strategies
- Setting long-term targets for strategic and financial outcomes
- Allocating resources across the business portfolio (including mergers, acquisitions, and divestitures) and setting budgets to achieve strategic targets
- Managing performance by reviewing business unit results and deciding when and how to intervene
- Managing talent—in particular, creating effective incentives for managers
As value-minded managers navigate these tasks, traps abound. Primary among them is finding the right balance between generating profits in the short term and investing for value creation in the long term. This is one of management’s most difficult challenges. Especially in companies with many businesses, markets, and management layers, decisions tend to be biased toward short-term profit, because it is the most readily available and widely understood performance measure. Investors, equity analysts, supervisory directors, ...