2 chapter

CHARTING A COMPANYS DIRECTION: VISION AND

MISSION, OBJECTIVES,

AND STRATEGY

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

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What Does the Strategy-Making,

Strategy-Executing Process Entail?

1. Developing a strategic vision

2. Setting objectives

3. Crafting a strategy

4. 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

Directional

Is forward looking to

change

Focused

Is specific enough to

provide guidance in

decision making

Flexible

Is not so focused that it

makes it difficult to adjust

Feasible

Is within the realm of what

is possible

Desirable

Indicates why the directional

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 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. Red Hat

Provide a global trading platform

where practically anyone can trade

practically anything.

To be the global leader

in customer value.

Core Concept

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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

Markets to be

pursued

Future product/

market/customer/

technology focus

The mission statement

of a firm focuses on its

present business

purposewho we are and what we do

Current product and

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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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.

Example of a Mission Statement

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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

Core Concept

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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.

Core Concept

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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

Annual increases in earnings per share 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

Winning an x percent market share

Achieving customer satisfaction rates of

x percent

Achieving a customer retention rate of x percent

Acquire x number of new customers

Introduction of x number of new products in the

next three years

Reduce product development times to

x months

Increase percentage of sales coming from new

products to x percent

Improve information systems capabilities to

give frontline managers

defect information in

x minutes

Improve teamwork by increasing the number of

projects involving more

than one business unit

to x

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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

Concept to Action

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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 high-

level executives do.

Concept to Action

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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 Strategy-

Making, 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