How does strategy create value?

A clear, precise and defined strategy is vital for companies nowadays. Indeed, according to Arnold (2011), several decisions are made every day in companies. This is why it is primordial that management teams are aware of, respect and contribute to the main objective of the firm (Arnold, 2008).

For Johnson, Whittington and Scholes (2010), setting goals is a major issue in organisations. It has to be the right objective, at the right time. For the Boston Consulting Group (BCG), clearly establishing a suitable shareholder value target is the basis to generate long term sustainable shareholder value. To achieve a competitive advantage, and reach the shareholder value target, investor, business and financial strategies must go in the same direction.

Apple is a good example to explain the importance of the strategy in the creation of shareholder value. Everybody considered Steve Jobs, the ex CEO of Apple, as responsible for setting the stratey of the company. Between 1985 and 1995, when Steve Jobs was away from Apple, the company encountered several financial difficulties (The Economist, 2011). However, when he returned to the company, and set the company’s objective clearly and explained them to the manager of the organisation, shareholder value was suddenly created… Could it be a coincidence?

I don’t think so. To illustrate that fact, we can study another example.

In august 2011, Steve Jobs had to resign from his position as CEO of Apple, due to medical reason. The fact that Apple shares fall of 3% the day Steve Jobs gave his resignation, going from $376.18 to $365.01. This element shows that shareholders believed is his way to create shareholder value: setting a clear strategy.

Strategy decision are about choosing which product to launch, which market to enter/exit, how it is possible to ensure a good competitive advantage in those markets/products... once the strategy is in place, then it is possible to create shareholder value.

It all comes down to saying that strategy creates shareholder value by fixing clear objectives, and explaining managers how to achieve them.

As I said in the first post of this blog, any constructive feedback is welcome. And if you have any suggestions, notes or comments, please feel free to comment under this post.