Strategy-Making process
The first step in the strategy-making process is determining whether a strategy needs to be changed to sustain a competitive advantage. Because uncertainty and competitive inertia make this difficult to determine, managers can improve the speed and accuracy of this step by looking for differences between top management's intended strategy and the strategy actually implemented by lower-level managers (i.e., looking for strategic dissonance). The second step is to conduct a situational analysis that examines internal strengths and weaknesses (distinctive competencies and core capabilities), as well as external threats and opportunities (environmental scanning, strategic groups, and shadow-strategy task forces). In the third step of the strategy-making process, strategic reference point theory suggests that when companies are performing better than their strategic reference points, top management will typically choose a risk-averse strategy. When performance is below strategic reference points, it is more likely to choose risk-seeking strategies. Importantly, however, managers can influence the choice of strategic alternatives by actively changing and adjusting the strategic reference points they use to judge strategic performance.