A successful business must:

• meet customer needs;
• be profitable;
• be better than competitors;
• be difficult to duplicate;
• be able to implement change.

Superior performance can only be measured against realistic goals.

Absolute performance standards are unrealistic; goals are situational and change over time. Goals should include the trade-off between profit growth and risk. Leaders must establish realistic goals.
 
Establishing realistic goals is a creative act of leadership. Understanding the demands, power and sanctions of each corporate constituency is essential to establishing realistic goals. Balance of power will change over time, but the ultimate aim is to define goals and performance which prevent dominance by any one constituency. Most difficult trade-off is between the growth goal and the profit goal. Shareholders profit conflicts with employee security, and rewards. 

Three insights are necessary to create clear strategic direction: 

 1. Product Line Analysis 
Identifies the strengths and weaknesses of each product in the corporate portfolio. In particular sources of cash and profit can be established; investment needs specified. Assists in eliminating unprofitable, low potential product lines and expanding high potential product lines. 

2. Profit Center Analysis 
Determines whether inter-dependencies between businesses create value and competitive advantage or whether each business should be evaluated independently on its own merit. Poor performing businesses should not be maintained for "overall strength" without strong evidence of their profit center relatedness value. 

3. Growth Analysis 
Identifies how resources can be used to exploit profitable growth in appropriate businesses. Proper analysis prevents misdirected growth investments, acquisitions and unlocks cash traps. If all three insights are not present the corporation can be locked in a corporate strategy muddle. 


The organizational structure must be consistent with corporate strategy and clear component of a leaders vision. Three decisions must be made in designing the organization structure.  Corporate/business interface decisions set authority and accountability in the corporation. Corporate activities fall into three patterns or "philosophies" Corporate Strategic Direction: Involves corporate executives deeply in defining and monitoring corporate and business strategies. Most appropriate for a highly inter-related strategy. 

Corporate Strategic Coordination: Involves corporate executives in influencing strategy and monitoring financial results. An intermediate form of management. Corporate Financial Control: Decentralizes strategic control to businesses and relies upon financial control at the corporate level. Most appropriate for a diversified strategy. 

Boundaries define the focus of business department leadership. Business department boundaries and groupings of business units can be a powerful implementation lever. Superior performance frequently requires boundaries focused primarily on the product market place. 

New boundaries should be created when the value of leadership focus exceeds the cost of lost relatedness benefits. Such as the introduction of a Product Engineering Department.  Integration devices can be used to balance choices made on boundaries and corporate  business interface. 

In labor intensive businesses self interested lateral cooperation by departments is preferable to integration by corporate hierarchy. Strategic-direction companies require more integration devices than financial-control companies. Lateral integration devices include centers of excellence, people transfers, transfer pricing systems, special study teams, and lead businesses. Vertical integration devices include strategic planning and control system, intermediate levels of organization, and functional authority. 

Business strategy identifies how competitive advantage will be achieved within the chosen business definition. Anticipation and knowledge of customer needs, economic viability and competitive conditions are critical to achieving competitive advantage. Strategy must be rooted in customer needs and expectations. Customers drive most businesses, not production processes or low cost production. Understanding customers is an essential starting point for business strategy.

Offerings to satisfy customer needs must be economically viable. Low-cost and differentiation are not mutually exclusive. Many products are low cost and high quality. A purely cost-based strategy is rarely an effective means of satisfying customer needs. Cost/price is only one of many attributes sought by customers. Economic viability requires a thorough understanding of major points of revenue, cost and contribution leverage. Competitive conditions - past, present and future - will impact achievement of competitive advantage and superior performance. Sustaining an economic offering requires understanding the forces of change in competitive conditions. Current competition, substitutes, new entrants must be mapped to determine influences on sustaining advantage.

Competitive advantage is achieved in particular areas of cost-effective, defensible value added for customers. The value added functions driving competitive advantage must be known, managed and protected.