Strategic Purpose - Company Mission

Prof Ashish K Mitra

The Strategic Planning Process

Mission & Objectives

Environmental Scanning

Strategy Formulation

Strategy Implementation

Evaluation & Control

VISIONMISSION

Founder / Stakeholders Top Management

OBJECTIVES (long term) Business Unit with Top Management

PlansUnit Manager with approval of

superior

Policies

Goals

Strategies& Tactics

Each Organizational Level, in conformityWith other unit policy

Individual Managers, in conformity With unit policies

Individual Managers, in conformityWith individual Goals

ORGANIZATIONAL DIRECTION

Vision & Mission

• Organization’s Vision & Mission act as guideline / direction for strategy formulation (Establishing Vision / mission are the key top level direction setting tasks in any organization)

• Process of strategy formulation involves articulating a vision , translating vision into a Mission that defines the organization’s purpose , converting mission into performance objectives, detailing each objective into specific goals, and formulating tactics and strategies for accomplishing the goals.

• Vision vs Mission : “What do we want to become?” vs “What is our business?”

Vision ……..• A well-conceived vision comprises of two main

components which are complimentary in nature.– A Core ideology – “What we stand for and we exist”,

the core values that never changes even when technology, competition , management style etc change

– An envisioned future – “what we aspire to become, to achieve, to create” – that demands significant change and progress. (BHAGs)

• Vision is a powerful motivator and keeps an organization moving in the forward direction

Vision….

• Vision is what insiders of organization create or perceive, however should also reflect concern of other stake holders in order to be effective, though it is true that support of shareholders is necessary to bring about any major change in the organization.

• Vision should try to streamline and correlate the personal goals of employees with organizational goals to the extent possible.

• Vision ought to convey a larger sense of purpose – so that the people in the organization see themselves as “building a cathedral” rather than “laying stones”.

Vision………

• A well articulated strategic vision creates enthusiasm for the course management has charted and engages all members of the organization, in which people live the business instead of just coming to work.

• They help in creating a shared sense of purpose. Compel people to take risks, experiment with ideas, stretch their energies and take others along a relentless pursuit to scale new heights.

• A vision has far more motivational value if it stresses the payoff for customers and/or the general well being of society, not the payoff for shareholders

Vision Statements…some examples

• Scotland Yard:”To make London the safest major city in the World”

• Charles Schwab:” To provide customers with the most useful and ethical finance services in the World”

• General Electric:”We will become number one or number two in every market we serve, and revolutionize this company to have the speed and agility of a small enterprise”

• NIKE:”To bring innovation and inspiration to every athlete in the world”

• Microsoft: “Empower people through great software – any time, any place, and on any device”

• INTEL:”Getting to a billion connected computers worldwide, millions of servers, and trillions of dollars of e-commerce.”

• Colgate-Palmolive:” To be the company of first choice in oral and personal hygiene by continuously caring for consumers and partners”

• Tata Steel: “we aspire to be the Global Steel Industry benchmark for Value creation and Corporate Citizenship”

• Azim Premji Foundation : To significantly contribute to quality universal education as a foundation to a just, humane and equitable society.

Mission Statements• ‘Mission’ is defined as the fundamental and enduring

purpose of an organization ( reason for being) that sets it apart from others of a similar nature

• Mission identifies the scope of its operation in terms of product, market ( the customer it seeks to serve) , and technology thrust areas

• Reflects the values, beliefs and priorities of the firm’s strategic decision makers – business philosophy, image company seeks to project and firm’s self-concept

• Mission of a business looks to an endless future as if the firm were immortal

• Firms must ensure that their mission remains relevant over time. Mission should not become a trap. Though mission is not to be tinkered often, organizations should not be building strategies around a mission that has been robbed of its reality.

Mission Statements……………• A mission does not represent a specific target. At the same time it is

not an euphoria either• The mission serves as a proclamation to insiders and outsiders on

what corporation stands for. A mission , however, is not a PR document; while it legitimizes the corporation’s existence and role in the society, its main purpose is to give internal direction for the future of the corporation.

• One school of thought says that the mission must be stated in precise & concrete terms. Another school feels that a good measure of generality is desirable, after all, they are not designed to express concrete ends; they are intended rather to provide motivation and general direction to everyone and an image , and a guiding philosophy for the enterprise as a whole.

• Levitt, in his classic work The Marketing Myopia forcefully brought out tragic flaw in viewing one’s business scope from a narrow product oriented perspective instead of broader need-oriented or function oriented perspective ( Failed American Railroad – defined business as ‘railroads’ rather than ‘transportation’)

Mission Statements…………….

• The mission is the reference point and guiding spirit for the growth plan of a firm, its nature and pace. AT&T’s mission stated in initial years – “to give a telephone to every American”. Later AT&T refined its mission to “connecting people any time, any where”. Changes in Corporate mission and business definition are part and parcel of growth process of a firm.

• Drucker talks about ensuring mission – objective – competency fit or congruence for organizations, which should be retested based on changes in external and internal environments.

• “That business mission is so rarely given adequate thought is perhaps the most important single cause of business frustration” – Peter Drucker

Mission Statements……………..

A mission statement usually attempts to answer thefollowing questions:• What is our reason for being? What is our basic purpose

( and long term objectives)? • What is unique or distinctive about our organization?• Who are, or should be, our principle customers, clients?• What are, or should be our principal economic concerns?• What is likely to be different ( from existing state) about

our business three to five years in future( growth)?• What are our principal products at present and what will

they be in future?• What are the basic beliefs, values, aspirations and

philosophical priorities of the firm?

Formulating a mission statement

• The process of formulating a mission for a specific business is best understood by considering the business at its inception.

• A typical business organization begins with the aspirations and beliefs of a single entrepreneur. As the business takes root and grows or is forced by competitive pressures to alter its product , market or technology , the company may redefine its mission statement with more assertion viz; “who we are and what we do”

Basic products, primary market and principal technology used in production or delivery

• The three indispensable components of a mission statement are the basic product, the primary market and the principal technology / special resources used in production or delivery. These three components describe the business activity of the company.

Company Philosophy• Statement of Company’s philosophy ( often called the

‘company creed’) usually accompanies or appears within the mission statement. It reflects the basic beliefs, values, aspirations, guiding principles and philosophical priorities to which the strategic decision makers are committed in managing the company.

• Company philosophy and values give a framework / boundary for individual actions aimed at achieving corporate goals.

• Example : Co philosophy of Sun Microsystems – “ We believe human development to be the worthiest of the goals of civilization for nurturing growth in the capabilities of people”

Values• By Values, we mean the beliefs, business principles,

and practices that are incorporated into the way the company operates and the behavior of company personnel. Value relate to such things as treatment of employees and customers, integrity, ethics, innovativeness, emphasis on quality or service, social responsibility, and community citizenship. Value statements reinforce the company’s vision, strategy and operating practices.

• Home Depot ( a large chain in US) has embraced values – entrepreneurial spirit, excellent customer service, giving back to the community, respect for all people, taking care of people, building strong relationships, and creating shareholder value.

• Sony’s vision rests on the values of encouraging individual creativity and its determination to be a pioneer”

• Intel’s corporate values consist of discipline, risk taking, quality, customer orientation, a result oriented atmosphere, and being a great place to work

• DuPont, which calls itself “a science company” and makes a wide array of products, stresses four values – safety, ethics, respect for people, and environmental stewardship.

Public Image

• The issue of public Image is increasingly becoming important, more so for a growing firm that is redefining markets, products, and its markets. Company’s mission statement should take into account public image that company wants to create. For example Johnson & Johnson products are regarded as “safe” and Sony’s as “quality” products.

Examples of mission statements• Cadbury India : “ To attain leadership position in the

confectionary market and achieve a strong national presence in the food drinks sector”

• Reliance Industries: “ To become a major player in the global chemicals business and simultaneously grow in other growth industries like infrastructure”

• Mckinsey & Co: “ To help business corporations and governments to be more successful”

• Merck: : “To provide society with superior products and services – innovations and solutions that satisfy customer needs and improve quality of life.”

• Eastman Kodak – “we are in the picture business”• ONGC – “ To stimulate, continue and accelerate efforts

to develop & maximize the contribution of the energy sector to the economy of the country”

• Pfizer Inc: Pfizer is a research-based , global pharmaceutical company. We discover and develop help them enjoy longer, innovative, value added products that improve quality of life of people around the world and help them enjoy, 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

• Ritz-Carlton Hotels : The Rtz-Carlton Hotel is a place where 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 ambience.

– The Ritz-Carlton experience enlivens the senses, instills well-being, and fulfills even the unexpressed wishes and needs of our guests.

• The Gillette Company: 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 categories are:– Male grooming products, including blades and

razors, electric shavers, shaving preparations ……….– Female grooming products, including ……….– Alkaline and special batteries and cells.– ……………..Values: In pursuing our mission, we will live by

following values- People- Customer Focus- Good Citizenship

• Microsoft – For years – mission that drove Microsoft was “a computer on every desk & every home using great software as empowering tool”. In 1999 broadened its vision- ”Empower people through great software any time, any place, and on any device”

• OTIS – “Our mission is to provide any customer a means of moving people and things up, down, sideways over short distances with higher reliability than any similar enterprise in the world”

• Bristol-Meyers Sqib – “ our mission is to extend and enhance human life by providing the highest quality health and personal care products. We intend to be preeminent global diversified health and personal care company”

Mission Statement of Azim Premji Foundation..

• Catalyze a national movement for Universalization of Elementary Education in India.

• Achieve significant improvement in the quality of education as a sustained method for attracting and retaining children in the school

• Work with existing government initiatives and create new ones to improve access, content and delivery of education.

• Build active, sustainable partnerships with individuals, community at large, government and other organizations committed to the field of education to leverage the effort for optimum results.

• Enable schools to guarantee learning • Develop world class human resources in the field of

education

David – Nine components of a mission statement

• Customers• Products or services• Markets• Technology• Concern for survival, growth and profitability• Philosophy• Self-concept• Concern for Public Image• Concern for employees

Process of developing a mission statement• Process of development of mission statement should

create an “emotional bond” & “sense of mission” between organization & employees. Emotional bond comes when an individual identifies with the underlying values & behavior of a firm.

• Involve as many managers & employees in process , brings commitment.

• An approach often used is to select several articles about mission statement, ask people to read as background information.

• Set up discussion groups, hire consultants / facilitators to manage process / draft language, get unbiased view

• Decide how best to communicate to all stakeholders

Establishing Objectives: the second direction setting task

• Setting objectives converts strategic vision / mission into specific performance targets. Objectives represents a managerial commitment to achieve specific outcomes and results within a time frame.

• Unless an organization’s long term direction is translated into. specific performance targets and managers are pressured to show progress in reaching these targets, vision and mission statements are likely to end up as nice words, window dressing and unrealized dreams

• Experience shows that companies whose managers set objectives for each key result area and then press forward with actions, typically outperform companies whose managers exhibit good intentions, try hard , and hope for the best.

Establishing Objectives: the second direction setting task..

• For objectives to function as yardsticks of organizational performance and progress,– they must be stated in quantifiable or measurable terms and – they must contain a deadline for achievement.

• Objectives are needed for each key result managers deem important to success. Two types of key result areas stand out: those relating to financial performance and those relating to strategic performance.

• Achieving acceptable financial performance is a must. In the long run profit is accepted as the clearest indication of a firm’s ability to survive and satisfy all stakeholders claims. However, there is a danger that decisions aimed at short term profitability will lead to strategic myopia (like overlooking concerns of customers, suppliers, regulators, creditors, allowing investment opportunities to let go etc)

Establishing Objectives: the second direction setting task……………….

• Achieving acceptable strategic performance is essential to sustaining and improving the company’s long term market position and competitiveness.

• Reasonable trade offs between different objectives / goals may be a reality

Establishing Objectives: the second direction setting task………………

• The need for both, the Long range and short range objectives: a strong commitment to achieve long-range objectives forces managers to begin taking actions now to reach desired performance levels later. Short-range objectives serve as mile stones.

• How much stretch should objectives entail? : Objectives out to be set at levels above what is doable with a little extra effort. With stretch an organization is likely to reach its full potential. Eg; GE’s philosophy of aggressive stretch targets.

• Objectives are needed at all organizational level: This means setting strategic and financial objectives for each organizational unit that support – rather than conflict with - the achievement of company wide strategic and financial objectives.

• The need for top down objective setting: – objective setting needs to be more of a top-down

process in order to guide lower-level managers and organizational units towards outcomes that support the achievement of the overall business and company objectives.

– Produces cohesion among objectives of different parts of organization and unify internal effort to move the company along the chosen strategic course.

– Reduces conflict – clearly stated objectives reduce misunderstanding & rivalry among organizational members

Financial Objectives Strategic Objectives

• Growth in revenues• Growth in earning• Bigger Profit margin• Higher return on investment• Higher dividend• Attractive EVA performance• Strong credit rating• A rising stock price• Attractive / sustainable increase

in MVA• A more diversified revenue base• Stable earning during recession

• A bigger market share• Quicker design to market time• Higher product quality than

rivals• Lower cost relative to rivals• Superior on-time delivery• Stronger brand names than

rivals• Superior customer service• Recognition as a leader in

technology/ product innovation• Strong distribution capability• Broader product range• High level of integrity in dealing

with customers, suppliers

Examples of Strategic & Financial Objectives

• 3M Corporation – “ To achieve annual growth in earnings per share of 10% or better, on average; a return on stockholders equity of 20-25%; a return on capital employed of 27% or better; and have at least 30% of sale come from products introduced in the past 4 years”

• Domino’s Pizza – “ To safely deliver a hot, quality pizza in 30 minutes or less at a fair price and at a reasonable profit”

• ALCAN – “ To be lowest-cost producer of aluminum and to out-perform the average return on equity of the S&P’s index

• Unilever:” Grow annual revenues by 5%-6% annually; increase operating profit margins from 11% - 16% percent within 5 years; trim the company’s 1200 food, household, and personal care products down to 400 core brands; focus sales and marketing efforts on those brands with potential to become respected, market-leading, global brands; and stream-line the company’s supply chain.

• Bristol-Meyers Squibb – “ To focus globally on those businesses in health and personal care where we can be number one or two through delivering superior value to the customer.”

• Ford Motor – “ To satisfy our customers by providing quality cars and trucks, developing new products, reducing the time it takes to bring new vehicles to the market, improving the efficiency of all our plants and processes, and building our team-work with employees, unions, dealers, and suppliers”