chapter

CHARTING A COMPANYS
DIRECTION: VISION AND
MISSION, OBJECTIVES,
AND STRATEGY

McGraw-Hill/Irwin

Copyright 2013 by The McGraw-Hill Companies, Inc. All rights reserved.

What Does the Strategy-Making,

Strategy-Executing Process Entail?
1.
2.
3.
4.

Developing a strategic vision

Setting objectives
Crafting a strategy
Implementing and executing the chosen
strategy
5. Monitoring developments, evaluating
performance, and initiating corrective
adjustments

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FIGURE 2.1

The Strategy-Making, Strategy-Executing Process

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Factors Shaping Strategic Decisions

External

Considerations

What are the industrys economic characteristics?

How strong are the competitive forces at play?
What forces are driving change in the industry?
What market positions do rivals occupy and what

moves are they likely to make next?

What are the key factors for future competitive

success?
What are the companys external opportunities?

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Factors Shaping Strategic Decisions

Internal

Considerations

How well is the present strategy working?

What are the companys competitively valuable

resources, capabilities, and internal weaknesses?

Are the companys prices and costs competitive?
Is the company competitively stronger or weaker

than key rivals?

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Stage 1: Developing a Strategic Vision,

a Mission, and Core Values
Strategic

Vision

Is top managements views about the firms direction

and future product-market-customer-technology focus

Provides a panoramic view of where we are going
Is distinctive and specific to a particular organization
Avoids use of innocuous uninspiring language that

could apply to most any firm

Definitively states how the companys leaders intend

to position the firm beyond where it is today

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Characteristics of Effectively
Worded Vision Statements

Graphic

Paints a picture of the kind

of firm that management is

trying to create

Is not so focused that it

makes it difficult to adjust

Directional

is possible

Focused

Desirable
Indicates why the directional

Is specific enough to

provide guidance in
decision making

Feasible
Is within the realm of what

Is forward looking to

change

Flexible

path makes sense

Easy to Communicate
Can be explained in simple

terms

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TABLE 2.2

Characteristics of Effectively Worded Vision Statements

Graphic

Paints a picture of the kind of company that management is trying to

create and the market position(s) the company is striving to stake out.

Directional

Is forward looking; describes the strategic course that management has

charted and the kinds of product-market-customer-technology changes
that will help the company prepare for the future.

Focused

Is specific enough to provide managers with guidance in making

decisions and allocating resources.

Flexible

Is not so focused that it makes it difficult for management to adjust to

changing circumstances in markets, customer preferences, or
technology.

Feasible

Is within the realm of what the company can reasonably expect to

achieve.

Desirable

Indicates why the directional path makes good business sense.

Easy to
communicate

Is explainable in 5 to 10 minutes and, ideally, can be reduced to a

simple, memorable slogan

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TABLE 2.3

Common Shortcomings in Company Vision Statements

Vague or
incomplete

Short on specifics about where the company is headed or what the

company is doing to prepare for the future.

Not forward
looking

Doesnt indicate whether or how management intends to alter the

companys current product-market-customer-technology focus.

Too broad

So all-inclusive that the company could head in most any direction,

pursue most any opportunity, or enter most any business.

Bland or
uninspiring

Lacks the power to motivate company personnel or inspire shareholder

confidence about the companys direction.

Not
distinctive

Provides no unique company identity; could apply to firms in any of

several industries (including rivals operating in the same market arena).

Too reliant on
superlatives

Doesnt say anything specific about the companys strategic

course beyond the pursuit of such distinctions as being a recognized
leader, a global or worldwide leader, or the first choice of customers.

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Concepts and Connections 2.1

Examples of Strategic VisionsHow Well Do They Measure Up?

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Concepts and Connections 2.1

Examples of Strategic VisionsHow Well Do They Measure Up?

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Examples of Vision Statements

To be the global leader
in customer value.

Provide a global trading platform

where practically anyone can trade
practically anything.

Red Hat

To extend our position as the most trusted

Linux and open source providerthrough a
complete range of enterprise software, a
powerful Internet platform, and associated
support and services.

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 Core Concept
Strategic Inflection Points

A change in vision is required when it

becomes evident to management that
the industry has changed in a significant
way that renders the companys current
vision obsolete.

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The Importance of Communicating

the Strategic Vision
An

engaging, inspirational vision

Challenges and motivates the workforce

Articulates a compelling case for

where we are going and why

Evokes positive support and excitement
Arouses a committed organizational

effort to move in a common direction

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Expressing the Essence

of the Vision in a Slogan
Nike

To bring innovation and inspiration

to every athlete in the world

The

Mayo Clinic

The best care to every patient every day

Greenpeace

To halt environmental abuse and promote

environmental solutions.

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Why a Sound, Well-Communicated

Strategic Vision Matters
1. It crystallizes senior executives own views about
the firms long-term direction.
2. It reduces the risk of rudderless decision making
by management at all levels.

3. It is a tool for winning the support of employees to

help make the vision a reality.
4. It provides a beacon for lower-level managers in
forming departmental missions.
5. It helps an organization prepare for the future.

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Strategic Vision versus Mission Statement

A

strategic vision
concerns a firms
future business
pathwhere we
are going

The

mission statement
of a firm focuses on its
present business
purposewho we are
and what we do

Markets to be

Current product and

pursued
Future product/
market/customer/
technology focus

service offerings
Customer needs being
served

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Developing a Company
Mission Statement
Ideally,

a company mission statement

is sufficiently descriptive to:
Identify the companys products or services.
Specify the buyer needs it seeks to satisfy.
Specify the customer groups or markets it is

endeavoring to serve.
Specify its approach to pleasing customers.
Give the company its own identity.

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Example of a Mission Statement

The mission of Trader Joes is to give our customers

the best food and beverage values that they can find
anywhere and to provide them with the information
required for informed buying decisions. We provide
these with a dedication to the highest quality of
customer satisfaction delivered with a sense of
warmth, friendliness, fun, individual pride, and
company spirit.

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Examples of Mission Statements

To help people and businesses

throughout the world realize
their full potential.
To organize the worlds information
and make it universally accessible
and useful.

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Strategic Mission, Vision, and Profit

Firms

sometimes state that their mission

is to simply earn a profit.

Profit is the obvious intent of every commercial

enterprise.
Profit

is not who we are and what we do.

Profit

is more correctly an objective and

a result of what a firm does.

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Linking the Strategic Vision and

Mission with Company Values
CORE CONCEPT
A firms values are the beliefs, traits,
and behavioral norms that the firms
personnel are expected to display in
conducting the firms business and
pursuing its strategic vision and mission.

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CONCEPTS & CONNECTIONS 2.2

ZAPPOS MISSION AND CORE VALUES

Deliver Wow through Service

Embrace and Drive Change
Create Fun and a Little Weirdness
Be Adventurous, Creative, and Open Minded
Pursue Growth and Learning
Build Open and Honest Relationships with
Communication
Build a Positive Team and Family Spirit
Do More with Less
Be Passionate and Determined
Be Humble

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Stage 2: Setting Objectives

Why

set objectives?

To convert the strategic vision into

specific performance targets

To create yardsticks to track progress
and measure performance
Objectives

should:

Be well-stated (clearly worded)

Be challenging, yet achievable in order to stretch

the organization to perform at its full potential

Be quantifiable (measurable)
Contain a specific deadline for achievement
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 Core Concept

Objectives are an organizations

performance targetsthe results
management wants to achieve.

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Stage 2: Setting Objectives (contd)

What

Kinds of Objectives to Set

Financial objectives

Communicate managements targets for financial

performance

Are lagging indicators that reflect the results of past

decisions and organizational activities

Relate to revenue growth, profitability, and return on

investment

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Stage 2: Setting Objectives (contd)

What

Kinds of Objectives to Set

Strategic objectives

Are related to a firms marketing standing and

competitive vitality

Are leading indicators of a firms future financial

performance and business prospects.

If achieved, indicate that a firms future financial

performance will be better than its current or past
performance.

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 Core Concept
The balanced scorecard is a widely
used method for combining the use of
both strategic and financial objectives,
tracking their achievement, and giving
management a more complete and
balanced view of how well an
organization is performing.

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TABLE 2.4

The Balanced Scorecard Approach

to Performance Measurement

Financial Objectives

Strategic Objectives

An x percent increase
in annual revenues

Winning an x percent
market share

Annual increases in
earnings per share of
x percent

Achieving customer
satisfaction rates of
x percent

An x percent return on
capital employed (ROCE)
or shareholder
investment (ROE)

Bond and credit ratings

of x

Internal cash flows of

x to fund new capital
investment

Increase percentage of
sales coming from new
products to x percent

Improve information
systems capabilities to
give frontline managers
Achieving a customer
defect information in
retention rate of x percent
x minutes
Acquire x number of new
Improve teamwork by
customers
increasing the number of
Introduction of x number
projects involving more
of new products in the
than one business unit
next three years
to x
Reduce product
development times to
x months

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Examples of Financial Objectives

X% increase in annual revenues

X% increase annually in after-tax profits

Profit margins of X%

X% return on capital employed (ROCE)

Sufficient internal cash flows to fund 100%

of new capital investment

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Examples of Strategic Objectives

Winning an X% market share

Achieving a customer retention rate of X%

Acquire X number of new customers

Reduce product defects to X%

Introduction of X number of new products

in the next three years

Increase employee training to X hours/year

Reduce turnover to X% per year

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Examples of Company Objectives

General Motors
Reduce the percentage of automobiles using

internal combustion engines through the

development of hybrids, range-extended electric
vehicles, and hydrogen fuel cell electric engines.
Reduce automotive structural costs to benchmark

levels of 23% of revenue by 2012 from 34% in 2005.

Reduce annual U.S. labor costs by an additional

$5 billion by 2011.

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Examples of Company Objectives

The Home Depot

Be the number one destination for professional

contractors.

Improve in-stock positions so customers can find

and buy exactly what they need.

Deliver differentiated customer service and the

know-how that our customers have come to expect.

Repurchase $22.5 billion of outstanding shares

during 2008.

Open 55 new stores with 5 store relocations in 2008.

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Short-Term and Long-Term Objectives

Short-Term

Objectives

Targets to be achieved soon

Milestones or stair steps for

reaching long-range performance

Long-Term

Objectives

Targets to be achieved within 3 to 5 years

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The Need for Objectives at

All Organizational Levels
Objectives

Are Needed at All Levels

1. Set business-level objectives

2. Establish functional-area objectives
3. Set operating-level objectives last
Long-term

objectives take precedence over

short-term objectives

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Stage 3: Crafting a Strategy

Crafting

a strategy means asking:

How to attract and please customers

How to compete against rivals
How to position the firm in the marketplace and

capitalize on attractive opportunities to grow the

business
How best to respond to changing economic and

market conditions
How to manage each functional piece of the business
How to achieve the firms performance targets

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A Firms Strategy-Making Hierarchy

A

firms strategy is a collection of initiatives

undertaken by managers at all levels in the
organizational hierarchy

Crafting

strategy is a collaborative effort

that:
Involves managers from various

levels of the organization

Is rarely something only high-

level executives engage in

Requires choosing among

the various strategic alternatives

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 Concept to Action
In most firms, crafting strategy is a
collaborative team effort that includes
managers in various positions and at
various organizational levels. Crafting
strategy is rarely something only highlevel executives do.

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 Concept to Action
Corporate strategy establishes an overall
game plan for managing a set of businesses
in a diversified, multibusiness firm.
Business strategy is primarily concerned
with strengthening the firms market position
and building competitive advantage in a
single business company or a single
business unit of a diversified multibusiness
corporation.

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FIGURE 2.2

A Companys Strategy-Making Hierarchy

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Corporate Strategy versus

Business Strategy
Corporate strategy is orchestrated by
the CEO and other senior executives and
establishes an overall game plan for managing
a set of businesses in a diversified, multibusiness
company.
Business strategy is primarily concerned with
building competitive advantage in a single business
unit of a diversified company or strengthening the
market position of a nondiversified single business
company.

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The Strategy-Making Hierarchy

Corporate
strategy

Is orchestrated by the CEO and other senior executives and

establishes an overall game plan for managing a set of businesses
in a diversified, multibusiness company.
Addresses the questions of how to capture cross-business
synergies, what businesses to hold or divest, which new markets to
enter, and how to best enter new marketsby acquisition, creation
of a strategic alliance, or through internal development.

Business
strategy

Is primarily concerned with building competitive advantage in a

single business unit of a diversified company or strengthening the
market position of a nondiversified single business company.

Functional-area
strategies

Are concerned with the strategies specifically related to particular

functions or processes within a business (marketing strategy,
production strategy, finance strategy, customer service strategy,
product development strategy, and human resources strategy).

Operating
strategies

Are relatively narrow strategic initiatives and approaches of limited

scope for managing key operating units (plants, distribution centers,
geographic units) and specific operating activities such as materials
purchasing or Internet sales.
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Stage 4: Implementing and Executing

the Chosen Strategy
Managing

the strategy execution process

involves:
Staffing the organization to provide needed skills and

expertise.
Allocating ample resources to activities critical to

good strategy execution.

Ensuring that policies and procedures facilitate rather

than impede effective execution.

Installing information and operating systems that

enable personnel to perform essential activities.

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Stage 4: Implementing and Executing

the Chosen Strategy (cond)
Managing

the strategy execution

process involves:
Pushing for continuous improvement in

how value chain activities are performed.

Tying rewards and incentives directly to the

achievement of performance objectives.

Creating a company culture and work climate

conducive to successful strategy execution.

Exerting the internal leadership needed

to propel implementation forward.

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Stage 5: Evaluating Performance and

Initiating Corrective Adjustments
Triggering

change as needed:

Monitoring new external developments

Evaluating the firms progress
Making corrective adjustments
Managing

strategy is an ongoing process,

not an every-now-and-then task
A firms vision, objectives, strategy, and approach

to strategy execution are never final

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Corporate Governance:
The Role of the Board Of Directors

The Role of the Board Of Directors in the StrategyMaking, Strategy-Executing Process:

1. Oversee the firms financial accounting and reporting practices.
2. Diligently critique and oversee the companys direction, strategy,

and business approaches.

3. Evaluate the caliber of senior executives strategy-making and

strategy-executing skills.
4. Institute a compensation plan for top executives that rewards

them for actions and results that serve shareholder interests.

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Strong Boards Lead to Good

Corporate Governance
A

Strong, Independent Board of Directors:

Is well informed about the companys performance

Guides and judges the CEO and other top executives
Has the courage to curb management actions it

believes are inappropriate or unduly risky

Certifies to shareholders that the CEO is doing what

the board expects

Provides insight and advice to management
Is intensely involved in debating the pros and cons of

key decisions and actions

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Leading the Strategic

Management Process
The

Strategic Management Process

calls for six managerial actions:
1. Making sure the company has a good strategic plan
2. Stay on top of what is happening (MBWA)
3. Putting constructive pressure on organizational units

to achieve good results

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Leading the Strategic

Management Process (contd)
The

Strategic Management Process

calls for six managerial actions:
4. Pushing corrective actions to improve both the

firms strategy and how well it is being executed

5. Leading the development of better competitive

capabilities
6. Displaying ethical integrity and leading social

responsibility initiatives

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Making Sure a Firm Has

a Good Strategic Plan
Responsibility

of CEO

Effectively communicate the vision, objectives, and

major strategy components

Exercise due diligence in reviewing lower-level
strategies for consistency with higher-level strategies

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Staying on Top of How

Well Things Are Going
Stay

connected to the field by managing by

walking around (MBWA)

Insist

that top managers spend time in the

trenches to exchange information and ideas
through face-to-face contact with employees

Prevent

overly abstract thinking and getting

disconnected with reality of whats
happening

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Pushing for Good Results

and Operating Excellence
Fosters

a resultsoriented,
high-performance culture
Treat employees with dignity and respect
Encourage employees to use initiative and

creativity in performing their work

Set stretch objectives and clearly
communicate expectations
Focus attention on continuous improvement
Reward high performance
Celebrate successes

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Initiating Corrective Actions to

Improve Strategy and Execution
The

leadership challenge of making

corrective adjustments is twofold:
Deciding when adjustments are needed
Deciding what adjustments to make

Leaders

responsibility is to step
forward and push corrective actions

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Leading Social Responsibility

The strength of management commitment

determines whether a company will implement
and execute a full-fledged strategy of social
responsibility that:
That protects the environment
Actively participates in community affairs
Supports charitable causes
Supports workforce diversity and the overall

well-being of employees

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Displaying Ethical Integrity

The

CEO and other senior executives must

set an excellent example in their own ethical
behavior.

Top

management must declare unequivocal

support of the companys ethical code.

Top

management must be prepared to act

swiftly and decisively in punishing ethical
misconduct.

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Leading the Development of

Better Competitive Capabilities
Lead

efforts to strengthen existing

competitive capabilities
Anticipate changes in customer-market
requirements
Proactively build new competencies and
capabilities that hold promise for building
an enduring competitive edge

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