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Decisions made by top-level managers are likely to affect company performance over an extended period of time.  As a result, it is difficult to assess the effect of current decisions using current period performance. Many variables (or outside factors) intervene between management behaviour and company performance.

 

Changes in the company's external environment may result in good decisions becoming bad.  As a result, even the best executive compensation program is imperfect and thus will not result in the development and implementation of optimal strategies. Therefore managers may feel "pressured" to manipulate short-term performance to earn annual bonuses. In other words, achieving short-term objectives may take precedence over enhancing the long-term strategic competitiveness of the company. Long-term incentives expose managers to risks associated with uncontrollable (by managers or by the company) events, such as market fluctuations or industry decline.  And, managers' risk exposure increases as the term of the incentive increases.

 

In other words, even when the intentions are good, the financial results may be bad and vice versa.

 

Although there are no readymade solutions that can be applied across the board as every situation demands its own specific solution, a process can be evolved that would help put the things in perspective.

 

Objectives

After studying this chapter, you should be able to:

Describe what the strategy is all about

Describe the strategic-management process

Explain the need for integrating analysis and intuition in strategic management.

Define and give examples of key terms in strategic management.

Discuss the nature of strategy formulation, implementation, and evaluation activities