Chapter 2

Company Mission

Learning Objectives

1. Describe a company mission and explain its values

2. Explain why the mission statement should include the company’s basic product or service, its primary markets, and its principal technology

3. Explain which goal of a company is most important: survival, profitability, or growth

4. Discuss the importance of company philosophy, public image, and company self-concept to stockholders

5. Give examples of the newest trends in mission statement components: customer emphasis, quality, and company vision

6. Describe the role of a company’s board of directors

7. Explain agency theory and its value

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What is a Company Mission?

Company Mission:

A broadly framed but enduring statement of a firm’s 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.

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Developing Missions & Strategies

Mission statements tell an organization where it is going

The Strategy tells the organization how to get there

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Mission

Mission - where are you going?

Organization’s purpose for being

Answers ‘What do we

provide to society?’

Provides boundaries and focus

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Questions Addressed in a Mission Statement

1. Why is this firm in business?

2. What are our economic goals?

3. What is our operating philosophy in terms of

quality, company image, and self-concept?

4. What are our core competencies and

competitive advantages?

5. What customers do and can we serve?

6. How do we view our responsibilities to

stockholders, employees, communities,

environment, social issues, and competitors?2-6

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 company’s mission

As the business grows or is forced to alter its product, market, or technology, redefining the company mission may be necessary

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Mission Statement Components

1. Customers2. Product or service3. Geographic Domain4. Technology5. Concern for Survival, growth &

profitability6. Philosophy7. Self-concept8. Concern for Public Image

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Excerpts From Actual Mission Statements

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Excerpts From Actual Mission Statements (contd.)

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Three Essential Components:

Basic Product or Service

Primary Market

Principal TechnologyIf a firm uses a “silver bullet” mission for outsiders to read, it will include these three components.

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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 short-term aims

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Primary Company Goals (contd.)

Profitability – A firm’s profitability is the mainstay goal of a business. Clearest indication of firm’s ability to satisfy

principal claims and desires of employees and stockholders

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Primary Company Goals (contd.)

Growth – A firm’s 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.

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Company Philosophy

Company philosophy is often called company creed

Usually company’s philosophy 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

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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.

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Company Self-Concept

A major determinant of a firm’s 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.

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Mission:

To refresh the world.

To inspire moments of optimism and happiness.

To create value and make a difference.

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TOYOTA moving forward

"To attract and attain customers with high-valued products and services and the most satisfying ownership experience in America.“

"To be the most successful and respected car company in America."

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Our Mission:

Delight our customers, employees, and shareholders by relentlessly delivering the platform and technology advancements that become essential to the way we work and live.

Our goal is to be the preeminent provider of semiconductor chips and platforms for the worldwide digital economy

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Mission:

Global market leader of the international express and logistics industry,

specializing in providing innovative and customized solutions from a single

source.

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Cornell’s Mission: To discover, preserve, and disseminate knowledge; produce creative work; and promote a culture of broad inquiry throughout and beyond the Cornell community.

Cornell also aims, through public service, to enhance the lives and livelihoods of our students, the people of New York, and others around the world.

University of Cambridge’s Mission: is to contribute to society through the pursuit of education, learning, and research at the highest international levels of excellence.

University

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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

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Newest Trends in Mission Components (contd.)

Quality

“Quality is job one!”

The work of W. Edwards Deming and J.M. Juran

Malcolm Baldridge Awards

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Newest Trends in Mission Components (contd.)

Statement of company’s vision

A statement that presents a firm’s strategic intent designed to focus the energies and resources of the company on achieving a desirable future

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Companies summarize their goals and objectives in Mission and Vision statements.

Both these things serve different purposes for the company but are often confused with each other.

While a mission statement describes what the company wants now, the vision statement describes what the company wants to be in the future.

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Mission Statement Vision Statement

About:

A Mission statement talks about HOW you will

get to where you want to be. Defines the

purpose and primary objectives.

A Vision statement outlines where you

want to be. Communicates both the

purpose and values of your business

Answer: It answers the question, “What do we do?”It answers the question, “Why are we

here?”

Time:A mission statement talks about the present

leading to its future.

A vision statement talks about your

future.

Function:

It lists the broad goals for which the

organization is formed. Its prime function is

internal, to define the key measure or

measures of the organization's success and its

prime audience is the leadership team and

stockholders.

It lists where you see yourself some

years from now. It inspires you to give

your best. It shapes your understanding

of why are you working here

Change:

Your mission statement may change, but it

should still tie back to your core values and

vision.

Your vision should remain intact, even if

the market changes dramatically,

because it speaks to what you represent,

not just what you do.

Comparision chart

Deming’s 14 Points for management:

1. Create constancy of purpose.

2. Adopt the new philosophy.

3. Cease dependence on mass inspection to achieve quality.

4. End the practice of awarding business on price tag alone. Instead, minimize total cost, often accomplished by working with a single supplier.

5. Improve constantly the system of production and service.

6. Institute training on the job.

7. Institute leadership.2-28

Deming’s 14 Points (cont’d):

8. Drive out fear.

9. Break down barriers between departments.

10. Eliminate slogans, exhortations, and numerical targets.

11. 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 self-improvement.

14. Put everyone in the company to work to accomplish the transformation.

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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.

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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 company’s legal and ethics compliance

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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.

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Agency Costs

The cost of agency problems plus the cost of actions taken to minimize agency problems are collectively termed agency costs.

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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.

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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.

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Problems Resulting from Agency

1. Executives pursue growth in company size rather than earnings

2. Executives attempt to diversify their corporate risk

3. Executives avoid risk

4. Managers act to optimize their personal payoffs

5. Executives protect their status

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Solutions to Agency Problem

Owners pay executives a premium for their service to increase loyalty

Executives receive back-loaded compensation (handsome premium for future performance)

Creating teams of executives across different units of a corporation can help to focus performance measures on organizational rather than personal goals.

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Aligning Executive Interests with Owner Interests

Stock Option Plans

Bonus plans

Incentives for Long-Term

Performance

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Key Terms

Adverse selection

Agency costs

Agency theory

Board of directors

Company creed

Company mission

Moral hazard problem

Vision statement

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