lecture 2 company vision & mission

Company Vision & Mission

LECTURE 2

“If you don’t know where

you are going, any road

will take you there.”

Cheshire Cat to Alice Lewis Carroll, Alice in Wonderland

“If you articulate a vision

that makes people passionate,

there are so many amazing

things you can do.”

Dr. Sophie Vandebroek

Xerox Corporation

Table 2.1: Factors to Consider in Deciding on a Company’s Future Direction

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Key Elements of a Strategic Vision

Delineates management’s aspirations for the business

Provides a panoramic view of “where we are going”

Charts a strategic path

Is distinctive and specific to a particular organization

Avoids use of generic language that is dull and boring and that could apply to most any company

Captures the emotions of employees and steers them in a common direction

Is challenging and a bit beyond a company’s immediate reach

Role of a Strategic Vision

A well-conceived, well-communicated vision functions as a valuable managerial tool to Give the organization a sense of direction, mold organizational identity, and

create a committed enterprise

Illuminate the company’s directional path

Provide managers with a reference point to

Make strategic decisions

Translate the vision into hard-edged objectives and strategies

Prepare the company for the future

A strategic vision exists only as words and has no

organizational impact unless and until it wins the commitment

of company personnel and energizes them to act in ways that

move the company along the intended strategic path!

Table 2.2: Characteristics of an Effectively Worded Vision Statement

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Table 2.3: Common Shortcomings in Company Vision Statements

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Example of Strategic Vision

Red Hat

To extend our position as the most trusted Linux

and open source provider to the enterprise.

We intend to grow the market for Linux

through a complete range of enterprise Red

Hat Linux software, a powerful Internet

management platform, and associated

support and services.

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Example of Strategic Vision

UBS We are determined to be the best global financial services company.

We focus on wealth and asset management, and on investment banking

and securities businesses.

We continually earn recognition and trust from clients, shareholders, and

staff through our ability to anticipate, learn and shape our future.

We share a common ambition to succeed by delivering quality in what we

do.

Our purpose is to help our clients make financial decisions with confidence.

We use our resources to develop effective solutions and services for our

clients.

We foster a distinctive, meritocratic culture of ambition, performance and

learning as this attracts, retains and develops the best talent for our

company.

By growing both our client and our talent franchises, we add sustainable

value for our shareholders.

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Examples of Strategic Visions

Caterpillar

Be the global leader in customer value.

eBay

Provide a global trading

platform where practically anyone

can trade practically anything.

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What is a Company Mission?

Company Mission:

A broadly framed but enduring statement of a firm’s intent. It is the unique purpose that sets a company apart from others of its type and identifies the scope of its operations in product, market, and technology terms.

Strategic Vision vs. Mission

A strategic vision

concerns a firm’s future

business path - “where

we are going”

Markets to be pursued

Future product/market/

customer/technology focus

Kind of company

management is

trying to create

A company’s mission

statement typically

focuses on its present

business purpose - “who

we are and what we do”

Current product and

service offerings

Customer needs and

customer groups being

served

Geographic

coverage

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Characteristics of a Mission Statement

Identifies boundaries of a company’s current business and says something about Present products and services

Types of customers served

Geographic coverage

Conveys Who we are,

What we do, and

Why we are here

A good mission statement describes a company’s business

makeup and purpose in language specific enough to give

the company its own identity and distinguish it from

other enterprises in the same or other industries!

Questions Addressed in a Mission Statement

Why is this firm in business?

What are our economic goals?

What is our operating philosophy in terms of quality, company image, and self-concept?

What are our core competencies and competitive advantages?

What customers do and can we serve?

How do we view our responsibilities to stockholders, employees, communities, environment, social issues, and competitors?

Formulating a Mission

The typical business begins with the beliefs, desires, and aspirations of a single entrepreneur

These beliefs are usually the basis for the company’s mission

As the business grows or is forced to alter its product, market, or technology, redefining the company mission may be necessary

Ex. 2.2 (adapted) Mission Statement Components

1. Customer-market 2. Product-service 3. Geographic Domain 4. Technology 5. Concern for Survival 6. Philosophy 7. Self-concept 8. Concern for Public Image

Three Essential Components:

Basic Product or Service

Primary Market

Principal Technology If a firm uses a “silver bullet” mission for

outsiders to read, it will include these three components.

Primary Company Goals

Survival – A firm that is unable to survive will be incapable of satisfying the aims of any of its stakeholders.

This goal is often taken for granted

If neglected, firm may focus on short-term aims

Primary Company Goals (contd.)

Profitability – A firm’s profitability is the mainstay goal of a business.

Clearest indication of firm’s ability to satisfy principal claims and desires of employees and stockholders

Primary Company Goals (contd.)

Growth – A firm’s growth is tied inextricably to its survival and profitability. Growth in this sense must be broadly defined.

Important to define growth – i.e., in terms of market share, etc.

Company Philosophy

Company philosophy is often called company creed.

Usually accompanies or appears within the mission statement

Reflects the basic beliefs, values, aspirations, and philosophical priorities to which strategic decision makers are committed in managing the company

Public Image

Both present and potential customers attribute certain qualities to particular businesses.

Firms seldom address the question of their public image in an intermittent fashion.

Firms should be concerned with their public image even when there is no public agitation.

Company Self-Concept

A major determinant of a firm’s success is the extent to which the firm can relate functionally to its external environment.

The ability of firms to survive in a dynamic and highly competitive environment would be severely limited if they did not understand their impact on others or of others on them.

Ordinarily, descriptions of the company self-concept per se do not appear in mission statements.

Newest Trends in Mission Components

Sensitivity to customer wants

“The customer is our top priority”

Importance of consumer satisfaction

The “Penney Idea”

Importance of customer service

Newest Trends in Mission Components (contd.)

Quality

“Quality is job one!”

The work of W. Edwards Deming and J.M. Juran

Malcolm Baldridge Awards

Deming’s 14 Points:

1. Create constancy of purpose.

2. Adopt the new philosophy.

3. Cease dependence on mass inspection to achieve quality.

4. End the practice of awarding business on price tag alone. Instead, minimize total cost, often accomplished by working with a single supplier.

5. Improve constantly the system of production and service.

6. Institute training on the job.

7. Institute leadership.

Deming’s 14 Points (cont’d):

8. Drive out fear.

9. Break down barriers between departments.

10. Eliminate slogans, exhortations, and numerical targets.

11. Eliminate work standards (quotas) and management by objective.

12. Remove barriers that rob workers, engineers, and managers of their right to pride of workmanship.

13. Institute a vigorous program of education and self-improvement.

14. Put everyone in the company to work to accomplish the transformation.

Newest Trends in Mission Components (contd.)

Statement of company’s vision

A statement that presents a firm’s strategic intent designed to focus the energies and resources of the company on achieving a desirable future

Boards of Directors

The board of directors is the group of stockholder representatives and strategic managers responsible for overseeing the creation and accomplishment of the company mission.

Major Board Responsibilities:

Establish and update mission

Elect top officers & CEO

Establish compensation for top officers

Determine amount & timing of dividends

Set broad company policy

Set objectives and authorize managers to implement long-term strategy

Mandate company’s legal and ethics compliance

Agency Theory

Agency theory is a set of ideas on organizational control based on the belief that the separation of the ownership from management creates the potential for the wishes of owners to be ignored.

Agency Costs

The cost of agency problems plus the cost of actions taken to minimize agency problems are collectively termed agency costs.

How Agency Problems Occur

Moral hazard problem

Executives are often free to pursue their own interests because of the disproportionate access they have to company information. This is the moral hazard problem.

How Agency Problems Occur (contd.)

Adverse selection

is an agency problem caused by the limited ability of stockholders to determine the competencies and priorities of executives at hire.

Problems Resulting from Agency

Executives pursue growth in company size rather than earnings

Executives attempt to diversify their corporate risk

Executives avoid healthy risk

Managers act to optimize their personal payoffs

Executives protect their status

Solutions to Agency Problem

Owners pay executives a premium for their service to increase loyalty

Executives receive back-loaded compensation.

Creating teams of executives across different units of a corporation can help to focus performance measures on organizational rather than personal goals.

Aligning Executive Interests with Owner Interests

Stock Option Plans

Bonus plans

Incentives for Long-Term Performance

References

Pearce, J.A. & Robinson, R.B. 2013. Strategic Management: Formulation, Implementation & Control, 13th Edition. McGraw-Hill International edition, Chapter 2.

Thompson & Strickland, 2010, Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases, Chapter 2