Company Vision & Mission

LECTURE 2

If you dont 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 Companys Future Direction

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Key Elements of a Strategic Vision

Delineates managements 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 companys 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 companys 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 firms 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 A companys mission

concerns a firms 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

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 companys current business and says something about
Present products and services Types of customers served Geographic coverage Who we are, What we do, and Why we are here

Conveys

A good mission statement describes a companys 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 companys 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. 2. 3. 4. 5. 6. 7. 8.

Customer-market Product-service Geographic Domain Technology Concern for Survival Philosophy Self-concept 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 shortterm aims

Primary Company Goals (contd.)

Profitability A firms profitability is the mainstay goal of a business.
Clearest indication of firms ability to satisfy principal claims and desires of employees and stockholders

Primary Company Goals (contd.)

Growth A firms 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 firms 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

Demings 14 Points:
1. 2. 3. Create constancy of purpose. Adopt the new philosophy. Cease dependence on mass inspection to achieve quality. End the practice of awarding business on price tag alone. Instead, minimize total cost, often accomplished by working with a single supplier. Improve constantly the system of production and service. Institute training on the job. Institute leadership.

4. 5.
6. 7.

Demings 14 Points (contd):

8. 9. 10. 11. Drive out fear. Break down barriers between departments. Eliminate slogans, exhortations, and numerical targets. 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 selfimprovement. 14. Put everyone in the company to work to accomplish the transformation.

Newest Trends in Mission Components (contd.)

Statement of companys vision A statement that presents a firms 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 companys 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. McGrawHill International edition, Chapter 2. Thompson & Strickland, 2010, Crafting and Executing Strategy: The Quest for Competitive Advantage: Concepts and Cases, Chapter 2