Entails management efforts to create a future-oriented roadmap for a company that spells out “where we are headed”
Buyer needs we are moving to satisfy
Buyer groups and markets we are going to target
Kind of company we are trying to become
First Direction-Setting Task
Characteristics of a Mission Statement
Defines current business activities
Highlights boundaries of current business
Who we are,
What we do, and
Where we are now
Company specific , not generic — so as to give a company its own identity
A company’s mission is not to make a profit !
The real mission is always— “What will we do to make a profit?”
Defining a Company’s Business
A good business definition incorporates three factors
Customer needs -- What is being satisfied
Customer groups -- Who is being satisfied
Technologies and competencies employed -- How value is delivered to customers to satisfy their needs
Narrow enough to specify real arena of interest
Boundary for what to do and not do
Beacon of where top management intends to take firm
Diversified companies have broader business definitions than single-business enterprises
Broad or Narrow Mission Statements?
Definitions: Broad vs. Narrow Scope
Global mail delivery
Travel & tourism
Wrought-iron lawn furniture
Long-distance telephone service
Overnight package delivery
Example: Mission Statement Pfizer is a research-based, global pharmaceutical company. We discover and develop innovative, value-added products that improve the quality of life of people around the world and help them enjoy longer, healthier, and more productive lives. The company has three business segments: health care, animal health and consumer health care. Our products are available in more than 150 countries. Pfizer Inc.
Example: Mission Statement The Ritz-Carlton Hotel is a place where the genuine care and comfort of our guests is our highest mission. We pledge to provide the finest personal service and facilities for our guests who will always enjoy a warm, relaxed yet refined ambiance. The Ritz-Carlton experiences enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests. Ritz-Carlton Hotels
Example: Mission Statement The Gillette Company is a globally focused consumer products company that seeks competitive advantage in quality, value-added personal care and personal use products. We compete in four large, worldwide businesses: personal grooming products, consumer portable power products, stationery products and small electrical appliances. As a company, we share skills and resources among business units to optimize performance. We are committed to a plan of sustained sales and profit growth that recognizes and balances both short- and long-term objectives. The Gillette Company
Example: Mission Statement
Our mission is to achieve or enhance clear leadership, worldwide, in the existing or new core consumer product categories in which we choose to compete. Current core categories are:
Male grooming products - blades and razors, electric shavers, shaving preparations and deodorants . . .
Female grooming products - wet shaving products, hair removal and hair care appliances and deodorants . . .
Alkaline and specialty batteries and cells.
Writing instruments and correction products.
Certain areas of the oral care market - toothbrushes . . .
Selected areas of the high-quality small household appliance business - coffeemakers . . .
Questions to Address in Developing a Strategic Vision
1. What changes are occurring in the market arena(s) where we operate and what implications do these changes have for our future direction?
2. What new or different customer needs should we be moving to satisfy?
3. What new or different buyer segments should we be concentrating on?
4. What new geographic or product markets should we be pursuing?
5. What should the company’s business makeup look like in 5 years?
6. What kind of company should we be trying to become?
Managerial Value of a Well-Conceived Strategic Vision and Mission
Crystallizes long-term direction
Reduces risk of rudderless decision-making
Conveys organizational purpose and identity
Keeps direction-related actions of lower-level managers on common path
Helps organization prepare for the future
Represent commitment to achieve specific performance targets by a certain time
Should be stated in quantifiable terms and contain a deadline for achievement
Spell-out how much of what kind of performance by when
Second Direction-Setting Task
Purpose of Objective-Setting
Substitutes results-oriented decision-making for aimlessness over what to accomplish
Provides a set of benchmarks for judging organizational performance
Two Types of Objectives Are Required
Outcomes that improve a firm’s financial performance
Outcomes that strengthen a firm’s competitiveness and long-term market position
Financial Objectives Strategic Objectives $
Examples: Financial Objectives
Achieve revenue growth of 10% per year
Increase earnings by 15% annually
Increase dividends per share by 5% per year
Increase net profit margins from 2% to 4%
Attractive EVA performance
Stronger bond and credit ratings
A rising stock price (outperform the S&P 500)
Attractive increases in MVA
Recognition as a “blue chip” company
A more diversified revenue base
Examples: Strategic Objectives
A bigger market share
Quicker design-to-market times than rivals
Higher product quality than rivals
Lower costs relative to key competitors
Broader product line than rivals
Better e-commerce and Internet sales capabilities than rivals
Better customer service than rivals
Recognition as a leader in technology
Wider geographic coverage than rivals
Example: Corporate Objectives
Extend our market leadership and position Exodus as the leading brand name in the category.
Enhance our systems and network management and Internet technology services.
Accelerate our domestic and international growth.
Leverage our technical expertise to address new market opportunities in e-commerce.
Exodus Communications (strategic objectives)
Example: Corporate Objectives
Self-funding revenue growth of 15% annually.
An average return on assets of 13 to 15%.
An average return on shareholders’ equity investment of 16 to 18%.
A strong balance sheet.
Motorola (financial objectives)
Example: Corporate Objectives
To achieve a 20% return on equity.
To achieve a net sales growth rate of 10% per year.
To maintain an average earnings per share growth rate of 15% per year.
To maintain total debt-to-total capital at 40% or less.
To pay out 25% to 35% of net income in dividends.
To make selective acquisitions which complement our current businesses and can enhance our overall returns.
To dispose of those parts of our businesses which do not or cannot generate adequate returns or do not fit with our business strategy.
McCormick & Company (financial objectives)
Strategic or Financial Objectives -- Which Take Precedence?
Pressures for better short-term financial performance become pronounced when
Firm is struggling financially
Resource commitments for new strategic initiatives may hurt bottom-line for several years
Proposed strategic moves are risky
Otherwise strategic objectives merit top priority—a firm that consistently passes up opportunities to strengthen its long-term competitive position
Risks diluting its competitiveness
Risks losing momentum in its markets
Hurts its ability to fend off rivals’ challenges
Short-Range Versus Long-Range Objectives
Targets to be achieved soon
Serve as stair steps for reaching long-range performance
Targets to be achieved w ithin 3 to 5 years
Prompt actions now that will permit reaching targeted long-range performance later
Objectives Are Needed at All Levels
Objective-setting process is top-down, not bottom-up!
1. First, establish organization-wide objectives and performance targets
2. Next, set business and product line objectives
3. Then, establish functional and departmental objectives
4. Individual objectives are established last
An organization’s strategy deals with
How to make the strategic vision a reality and achieve target objectives
The plan for
Building a sustainable competitive advantage
Strategy constitutes management’s business model for producing good profitability
Strategizing Involves HOW To . . .
Achieve performance targets
Out-compete rivals and achieve a sustainable competitive advantage
Respond to changing market conditions and new customer requirements
Make the strategic vision a reality
Characteristics of Strategy-Making
Strategy is action-oriented
Strategy evolves over time
Strategy-making is a never-ending, ongoing task
Figure 2.1: Levels of Strategy-Making in a Diversified Company Corporate Strategy Business Strategies Functional Strategies Operating Strategies Corporate-Level Managers Business-Level Managers Operating Managers Functional Managers Two-Way Influence Two-Way Influence Two-Way Influence
Figure 2-1: Levels of Strategy-Making in a Single-Business Company Business Strategy Functional Strategies Operating Strategies Executive-Level Managers Operating Managers Functional Managers Two-Way Influence Two-Way Influence
Figure 2.2: Corporate Strategy for a Diversified Company Corporate Strategy Approach to capital allocation Narrow or broad-based diversification Scope of geographic operations Moves to add new new businesses Moves to build positions in new industries Efforts to capture cross-business strategic fits Moves to divest weak business units Is diversification related, unrelated or a mix?
Tasks of Corporate Strategy
Moves to achieve diversification
Actions to boost performance of individual businesses
Capturing valuable cross-business strategic fits that result in 1 + 1 = 3 effects!
Establishing investment priorities and steering corporate resources into the most attractive businesses
Figure 2.3: Identifying the Components of a Single-Business Company’s Strategy Efforts to build competitive advantage Planned, proactive moves to outcompete rivals Responses to changing conditions Scope of geographic coverage Collaborative partnerships and strategic alliances R&D strategy Supply chain management strategy Manufacturing strategy Human resources strategy Finance strategy Business Strategy Marketing strategy Functional Strategies
What Business Strategy Involves
Forming responses to changes in industry and competitive conditions, buyer needs and preferences, economy, regulations, etc.
Designing competitive moves to produce sustainable competitive advantage
Building competitively valuable competencies and capabilities
Uniting strategic initiatives of functional areas
Addressing strategic issues facing the company
Game plan for a strategically-relevant function, activity, or business process
Details how key activities will be managed
Provide support for business strategy
Specify how functional objectives are to be achieved
Figure 2.5: Factors Shaping the Choice of Company Strategy Company’s Strategic Situation Craft the strategy External Factors Internal Factors Social, political, regulatory and community factors Competitive conditions and industry attractiveness Company opportunities and threats to company’s well-being Resource strengths, capabilities, and weaknesses Influences of key executives Shared values and company culture Identify and evaluate alternatives Determine relevance of internal and external factors
Social, Political, Regulatory, and Community Factors
Pressures from special interest groups
Glare of investigative reporting
Health and nutrition concerns
Concerns about alcohol and drug abuse
Impact of plant closings on communities
Rising/falling interest rates
Economic conditions (good or bad)
Trade restrictions, tariffs, and import quotas
What Do We Mean by “Corporate Social Responsibility?”
Conducting company activities within bounds of what is considered ethical and in public interest
Responding positively to emerging societal priorities and expectations
Demonstrating willingness to take needed action ahead of regulatory confrontation
Balancing stockholder interests against larger interest of society as a whole
Being a “good citizen” in community
Competitive Conditions and Industry Attractiveness
A company’s strategy has to be responsive to
Fresh moves of rival competitors
Changes in industry’s price-cost-profit economics
Shifting buyer needs and expectations
New technological developments
Pace of market growth
Ambitions, Philosophies, and Ethics of Key Executives
Managers generally stamp strategies they craft with their own personal
Attitudes toward risk
Shared Values and Company Culture
Values and culture often shape the strategic moves a company will
It is generally unwise for a company to undertake strategic moves which conflict with:
Values widely shared by managers and employees
Linking Strategy With Ethics
Ethical and moral standards go beyond
Prohibitions of law and
Language of “thou shalt not”
Ethical and moral standards involve
Issues of duty and
Language of “should and should not do”
A Firm’s Ethical Responsibilities to Its Stakeholders Owners/shareholders – Rightfully expect some form of return on their investment Employees - Rightfully expect respect for their worth and devoting their energies to firm Customers - Rightfully expect a seller to provide them with a reliable, safe product or service Suppliers - Rightfully expect to have an equitable relationship with firms they supply Community - Rightfully expect businesses to be good citizens in their community