Chapter 1: Strategic Leadership: Managing the Strategy-Making Process for Competitive Advantage I. Overview a. Strategy: set of related actions that managers take to increase their company’s performance b. Strategic Leadership: about how to most effectively manage a company’s strategy-making process to create competitive advantage c. Strategy Formulation: selecting strategies d. Strategy Implementation: putting strategies into action II. Strategic Leadership, Competitive Advantage, and Superior Performance e. Superior Performance i. Two reasons why maximizing shareholder value is the ultimate goal 1. Provide a company with risk capital a. Risk Capital: capital that can’t be recovered if a company fails 2. Shareholders are legal owners of a corporation ii. Shareholder Value: returns that shareholders earn from purchasing shares in a company 3. Comes from capital appreciation and dividend payments iii. Measuring Profitability 4. Return on Invested Capital (ROIC) b. ROIC= (profit/capital invested) iv. Measure Profit Growth by the increase in net profit overtime 5. Can grow profits if: c. Sell products in markets that are growing rapidly d. Gain market share from rivals e. Increase the amount sold to existing customers f. Expand overseas g. Diversify profitably into new lines of business v. Principal drivers of shareholder value: profitability and profit growth f. Competitive Advantage and a Company’s Business Model vi. Competitive Advantage: profitability is greater than the average profitability and profit growth of other companies competing for the same set of customers vii.