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CHAPTER 1 • THE NATURE OF STRATEGIC MANAGEMENT 17

benefit of a firm engaging in strategic planning. Note that all firms need all employees
on a mission to help the firm succeed.
The manner in which strategic management is carried out is thus exceptionally
important. A major aim of the process is to achieve the understanding of and commitment
from all managers and employees. Understanding may be the most important benefit
of strategic management, followed by commitment. When managers and employees
understand what the organization is doing and why, they often feel they are a part of the
firm and become committed to assisting it. This is especially true when employees
also understand linkages between their own compensation and organizational perfor-
mance. Managers and employees become surprisingly creative and innovative when they
understand and support the firm’s mission, objectives, and strategies. A great benefit of
strategic management, then, is the opportunity that the process provides to empower
individuals. Empowerment is the act of strengthening employees’ sense of effectiveness
by encouraging them to participate in decision making and to exercise initiative and
imagination, and rewarding them for doing so.
More and more organizations are decentralizing the strategic-management process,
recognizing that planning must involve lower-level managers and employees. The notion of
centralized staff planning is being replaced in organizations by decentralized line-manager
planning. For example, Walt Disney Co. dismantled its strategic-planning department and
gave those responsibilities back to the Disney business divisions. Former CEO Michael
Eisner had favored the centralized strategic-planning approach, but CEO Robert Iger
dissolved Disney’s strategic-planning department within weeks of his taking over the top
office at Disney.
The process is a learning, helping, educating, and supporting activity, not merely a
paper-shuffling activity among top executives. Strategic-management dialogue is more
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important than a nicely bound strategic-management document. The worst thing strategists
can do is develop strategic plans themselves and then present them to operating managers
to execute. Through involvement in the process, line managers become “owners” of the
strategy. Ownership of strategies by the people who have to execute them is a key to success!
Although making good strategic decisions is the major responsibility of an organiza-
tion’s owner or chief executive officer, both managers and employees must also be
involved in strategy formulation, implementation, and evaluation activities. Participation is
a key to gaining commitment for needed changes.
An increasing number of corporations and institutions are using strategic management
to make effective decisions. But strategic management is not a guarantee for success; it can
be dysfunctional if conducted haphazardly.

Financial Benefits
Research indicates that organizations using strategic-management concepts are more
profitable and successful than those that do not. 17 Businesses using strategic-management
concepts show significant improvement in sales, profitability, and productivity compared
to firms without systematic planning activities. High-performing firms tend to do system-
atic planning to prepare for future fluctuations in their external and internal environments.
Firms with planning systems more closely resembling strategic-management theory gener-
ally exhibit superior long-term financial performance relative to their industry.
High-performing firms seem to make more informed decisions with good anticipation
of both short- and long-term consequences. In contrast, firms that perform poorly often
engage in activities that are shortsighted and do not reflect good forecasting of future con-
ditions. Strategists of low-performing organizations are often preoccupied with solving
internal problems and meeting paperwork deadlines. They typically underestimate their
competitors’ strengths and overestimate their own firm’s strengths. They often attribute
weak performance to uncontrollable factors such as a poor economy, technological
change, or foreign competition.
More than 100,000 businesses in the United States fail annually. Business failures
include bankruptcies, foreclosures, liquidations, and court-mandated receiverships.
Although many factors besides a lack of effective strategic management can lead to