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CHAPTER TWO
STRATEGY FORMULATION
(THE BUSINESS VISION, MISSION, AND VALUES)

Strategy formulation is the development of long-range plans for the effective management of
environmental opportunities and threats, in light of corporate strengths and weaknesses. This
chapter focuses on the concepts and tools needed to evaluate and write a business vision, mission
and value statements.
“Notable Quotes”
a. "A business is not defined by its name, statutes, or articles of incorporation. The business
mission defines it. Only a clear definition of the mission and purpose of the organization
makes possible clear and realistic business objectives."—Peter Drucker
b. "A corporate vision can focus, direct, motivate, unify, and even excite a business into
superior performance. The job of a strategist is to identify and project a clear vision."—
John Keane
c. "Where there is no vision, the people perish."—Proverbs 29:18
d. "The last thing IBM needs right now is a vision. (July 1993) What IBM needs most right
now is a vision. (March 1996)" —Louis V. Gerstner Jr., CEO, IBM Corporation
e. "The best laid schemes of mice and men often go awry."—Robert Burns (paraphrased)
f. "A strategist’s job is to see the company not as it is . . . but as it can become."—John W.
Teets, Chairman of Greyhound, Inc.
g. "That business mission is so rarely given adequate thought is perhaps the most important
single cause of business frustration."—Peter Drucker
h. "The very essence of leadership is that you have to have vision. You can’t blow an
uncertain trumpet."—Theodore Hesburgh
A. Vision statement
"Where there is no vision, the people perish. “ Proverbs.
Developing a vision statement is often considered the first step in strategic planning, preceding
even development of a mission statement. Top management’s views and conclusions about the
company’s direction and the product, customer-market-technology focus constitutes a strategic
vision for the company. The vision of a company is the desired future state of a company. Vision
delineates management’s aspirations for the business, providing a panoramic view of the “where

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we are going” and a convincing rationale for why this makes good business sense for the
company. A strategic vision thus points an organization in a particular direction, charts a strategic
path for it to follow in preparing for the future, and molds organizational identity. A clearly
articulated strategic vision communicates management’s aspirations to stakeholders and helps
steer the energies of company personnel in a common direction.
A clear vision provides the foundation for developing a comprehensive mission statement. A
vision statement may apply to an entire company or to a single division of that company.
Whether for all or part of an organization, the vision statement answers the question, “Where do
we want to go?” Vision statement also answers the question “What do we want to become?”
What you are doing when creating a vision statement is articulating your dreams and hopes for
your business. It reminds you of what you are trying to build. While a vision statement does not
tell you how you are going to get there, it does set the direction for your business planning. That
is why it is important when constructing a vision statement to let your imagination go and dare to
dream – and why it is important that a vision statement capture your passion. When writing a
vision statement, your mission statement and your core competencies can be a valuable starting
point for articulating your values. Be sure, when you are creating one not to fall into the trap of
only thinking ahead a year or two. Once you have one, your vision statement will have a huge
influence on decision-making and the way you allocate resources.
The vision statement should be short, preferably one sentence, and as many managers as possible
should have input into developing the statement. In short, vision statement; is a statement about a
company’s long-term direction; hope for the reality to be; keeps an organization moving forward;
should be a description of the desired outcome of the strategic plan; organizations need a vision
based on a set of values that everyone to share. Vision is used to set out a 'picture' of the
organization in the future.
Vision must be compelling, inspiring and make people want to join the organization. It is the
banner, around which the organization rallies, since it is the driving force that keeps the
organization move towards a feasible by inspired future conditions. If vision is vivid and
meaningful enough, people can do outstanding things to bring to realization. However, if it is
lacking, no amount of resources will induce people to move forward. Vision Statement is a
statement of the future ideal you are working towards. It outlines what the organization wants to
be, or how it wants the world in which it operates to be. It provides inspiration and the basis for
all the organization is planning. It concentrates on the future and provides clear decision-making
criteria.
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The Process of Developing Vision and Mission Statements

Clear vision and mission statements are needed before alternative strategies can be formulated
and implemented. As many managers as possible should be involved in the process of
developing these statements because, through involvement, people become committed to an
organization. A widely used approach to developing a vision and mission statement is:
a) First to select several articles about these statements and ask all managers to read these
as background information.
b) Then ask managers themselves to prepare a vision and mission statement for the
organization.
c) A facilitator or committee of top managers should then merge these statements into a
single document and distribute the draft statements to all managers.
d) A request for modifications, additions, and deletions is needed next, along with a
meeting to revise the document. To the extent that all managers have input into and
support the final documents, organizations can more easily obtain managers’ support for
other strategy formulation, implementation, and evaluation activities. Thus, the process
of developing a vision and mission statement represents a great opportunity for
strategists to obtain needed support from all managers in the firm.
During the process of developing vision and mission statements, some organizations use
discussion groups of managers to develop and modify existing statements. Some organizations
hire an outside consultant or facilitator to manage the process and help draft the language.
Features of an effective vision statement include:
a. Clarity and lack of ambiguity
b. Vivid and clear picture
c. Description of a bright future
d. Memorable and engaging wording
e. Realistic aspirations
f. Alignment with organizational values and culture
To become effective, an organizational vision statement must become assimilated into the
organization's culture. Leaders have the responsibility of communicating the vision regularly;
creating narratives that illustrate the vision; acting as role models by embodying the vision;
creating short-term objectives compatible with the vision; and encouraging others to construct
their own personal vision compatible with the organization's overall vision.

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Some examples of vision statements are:

1. National Bank of Ethiopia is to be one of the strongest and most reputable central banks
in Africa.
2. The General Motors’ vision is to be the world leader in transportation products and
related services.
3. Dell’s vision is to create a company culture where environmental excellence is second
nature.
4. The Tyson Foods’ vision is to be the world’s first choice for protein solutions while
maximizing shareholder value.
Purpose of Vision:
a) Shared vision is an initial force that brings people together.
b) Clearly articulated vision can provide energy and strengths to individuals.
c) It inspires stakeholders.
d) It helps to see what you are working towards.
B. Mission statement
Historically mission is associated with Christian religious groups; indeed, for many years, a
missionary was assumed to be a person on a specifically religious mission. The word "mission"
dates from 1598, originally of Jesuits sending "missio", Latin for "act of sending" members
abroad.
A mission statement is an enduring statement of purpose that distinguishes one firm from another
in the same business. It is a declaration of a firm’s reason for existence. The mission is a well
convincible statement that includes a fundamental and unique purpose, which makes it different
from other organizations. It identifies the scope of its operation in terms of product offered
and market served. The mission also means what we are and what we do.

Mission statements are sometimes called a creed statement, a statement of purpose, a statement
of philosophy, a statement of beliefs, a statement of business principles, or a statement
“defining
our business. All organizations have a reason for being, even if strategists have not consciously
transformed this reason into writing. Mission statements are essential for effectively establishing
objectives and formulating strategies.
Mission statements often contain the purpose and aim of the organization; the organization's
primary stakeholders; products and services offered. A mission statement is like a flag the

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organization can hold up that gives the essence of what it is about. Some mission statements are
complex, long, and very broad; whereas some mission statements are simple and direct.
Mission Formulation:
The following are basic questions to be answered in mission formulation:
 What function(s) does the organization perform?
 For whom does the organization perform this function?
 How does the organization go about filling this function?
 Why does this organization exist?
Characteristics of a good mission statement
In order to be effective, a mission statement should possess the following characteristics:
Broad in scope: It usually is broad in scope for at least two major reasons. A good
mission statement allows for the generation and consideration of a range of feasible
alternative objectives and strategies without unduly stifling management creativity.
Excess specificity would limit the potential of creative growth for the organization.
However, an overly general statement that does not exclude any strategy alternatives
could be dysfunctional.
Do not include monetary amounts, numbers, percentages, ratios, or objective.
An effective mission statement should not be too lengthy; recommended length is less
than 250 words.
A mission statement needs to be broad to reconcile differences effectively among, and
appeal to, an organization’s diverse stakeholders, the individuals and groups of
individuals who have a special stake or claim on the company. Thus, a mission statement
should be reconciliatory.
Inspiring: an effective mission statement should arouse positive feelings and emotions
about an organization; it should be inspiring in the sense that it motivates readers to
action.
It should be motivating members of the organization or being its customers.
A customer orientation: a good mission statement describes an organization’s purpose,
customers, products or services, markets, philosophy, and basic technology. A good
mission statement reflects the anticipations of customers. Rather than developing a
product and then trying to find a market, the operating philosophy of organizations
should be to identify customers’ needs and then provide a product or service to fulfill
those needs
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Feasible: a mission should always aim high, but it should not be an impossible statement.
In addition, it should be realistic and achievable. Its followers must find it to be credible.
However, feasibility depends on the resources available to work towards a mission.
Precise: should not be so narrow to restrict the organization’s activities, nor should it be
too broad to make itself meaningless. It should be clear enough to lead to action
Include nine components: customers, products or services, markets, technology, concern
for survival/growth/profits, philosophy, self-concept, concern for public image, concern
for employees
Reveal that the firm is socially responsible
Reveal that the firm is environmentally responsible
A mission statement should be enduring.
Components of a mission statement

Mission statements can and do vary in length, content, format, and specificity. Most practitioners
and academicians of strategic management consider an effective statement to exhibit nine
characteristics or components. Because a mission statement is often the most visible and public
part of the strategic management process, it is important, that it includes all of these essential
components.
 Components and corresponding questions that a mission statement should answer are the
following.
. Customer: Who are the firm’s customers?
. Products or services: What are the firm’s major products or services?
. Markets: Geographically, where does the firm compete?
. Technology: Is the firm technologically current?

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. Concern for survival, growth, and profitability: Is the firm committed to growth and
financial soundness?
. Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the
firm?
. Self-concept: What is the firm’s distinctive competence or a major competitive
advantage?
. Concern for public image: Is the firm, responsive to social, community, and
environmental concerns?
. Concern for employees: Are employees a valuable asset of the firm?
Examples:
We aspire to make Pepsi Co. the world’s premier consumer Products Company, focused on
convenient foods and beverages. We seek to produce healthy financial rewards for investors as
we provide opportunities for growth and enrichment to our employees, our business partners and
the communities in which we operate. Moreover, in everything we do, we strive to act with
honesty, openness, fairness and integrity. Evaluate, using the elements of the mission statement.
Importance of mission statements
o It is recommended that organizations carefully develop a written mission statement in
order to reap the following benefits:
o To ensure unanimity of purpose within the organization
o To provide a basis, or standard, for allocating organizational resources
o To establish a general tone or organizational climate
o To serve as a focal point for individuals to identify with the organization’s purpose and
direction, and to deter those who cannot from participating further in the organization’s
activities
o To facilitate the translation of objectives into a work structure involving the assignment
of tasks to responsible elements within the organization
o To specify organizational purposes and then to translate these purposes into objectives in
such a way that cost, time, and performance parameters can be assessed and controlled
Strategic vision Vs mission
A strategic vision concerns: A mission statement focuses on
A firms future business path current business activity
Where are we going? Who we are & what we do?

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Market to be pursued Current product & service offerings

Future technology-product-customer focused Customer needs being served
Kind of company that management is trying to Technological & business capabilities
create
C. Business values
Business values are beliefs that the organization’s members hold in common and endeavor/try or
attempt / to put into practice. The values of a company state how managers and employees
should conduct themselves, how they should do business, and what kind of organization they
should build to help a company achieve its mission. Insofar as they help drive and shape
behavior within a company, values are commonly seen as the foundation of a company’s
organizational culture: the set of norms, and standards that control how employees work to
achieve an organization’s mission and goals.
 An organization’s culture is often seen as an important source of its competitive
advantage.
 Values guide your organization’s members in performing their work.
 They answer the question --“What are the basic beliefs that we share as an organization?”
 Values fosters individual and organizational integrity
Even though we frequently talk about mission and vision first, the basic underlying foundations
for both are our core values. Core values are the principles and standards at the very center of our
character, and from which we will not budge or stray. Core values are extremely stable and
change only very slowly over long periods. Core values form the basis for our beliefs about life,
us, and those around us, and the human potential of others and ourselves. The values of a
business are often unstated beliefs of the people who work in the business. These would be:
Business principles (e.g. social policy, commitments to customers)
Loyalty and commitment (e.g. are employees inspired to sacrifice their personal goals for the
good of the business as a whole. In addition, does the business demonstrate a high level of
commitment and loyalty to its staff?)
Guidance on expected behavior – a strong sense of mission helps create a work environment
where there is a common purpose
Example:
Addis Ababa University is guided by the following core values/principles:
Academic Freedom Integrity and Honesty
Excellence Celebrating diversity

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Reliance on Evidence and Authority of Intolerance to corruption

Reason Transparency and Accountability
Student-centeredness Entrepreneurial spirit.

D. Strategic issues
Business ethics, social responsibility, and environmental sustainability are interrelated and key
strategic issues facing all organizations.
Business Ethics
Good ethics is good business. Bad ethics can derail even the best strategic plans. This subsection
provides an overview of the importance of business ethics in strategic management. Business
ethics can be defined as principles of conduct within organizations that guide decision-making
and behavior. Good business ethics is a prerequisite for good strategic management; good ethics
is just good business!
Seven Principles of Admirable Business Ethics:
. Be trustworthy, because no individual or business wants to do business with an entity
they do not trust.
. Be open-minded, continually asking for “ethics-related feedback” from all internal and
external stakeholders.
. Honor all commitments and obligations.
. Do not misrepresent, exaggerate, or mislead with any print materials.
. Be visibly a responsible community citizen.
. Utilize your accounting practices to identify and eliminate questionable activities.
. Follow the motto: Do unto others, as you would have them do unto you.
All strategy formulation, implementation, and evaluation decisions have ethical ramifications. A
new wave of ethics issues related to product safety, employee health, sexual harassment, AIDS in
the workplace, smoking, acid rain, affirmative action, waste disposal, foreign business practices,
conflicts of interest, employee privacy, inappropriate gifts, and security of company records has
accentuated the need for strategists to develop a clear code of business ethics.
A code of business ethics is a document that provides behavioral guidelines that cover daily
activities and decisions within an organization. It specifies how an organization expects its
employees to behave while on the job. Developing codes of ethics can be a useful way to
promote ethical behavior. A code of ethics: clarifies company expectations of employee conduct

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in various situations; makes clear that the company expects its people to recognize the ethical
dimensions in decisions and actions.
An ethics “culture” needs to permeate organizations! A man (or woman) might know too little,
perform poorly, lack judgment and ability, and yet not do too much damage. However, if person
lacks character and integrity, no matter how knowledgeable, how brilliant he destroys people and
the most valuable resource of the enterprise. He destroys the spirit. Moreover, he destroys
performance. This is particularly true of the people at the head of an enterprise. In the spirit of an
organization is created from the top. If an organization is great in spirit, it is because the spirit of
its top people is great. If it decays, it does so because the top rots. As the proverb has it, “Trees
die from the top.” No one should ever become a strategist unless he or she is willing to have his
or her character serve as the model for subordinates.
Being unethical is a recipe for headaches, inefficiency, and waste. History has proven that the
greater the trust and confidence of people in the ethics of an institution or society, the greater its
economic strength. Business relationships are built mostly on mutual trust and reputation. Short-
term decisions based on greed and questionable ethics will preclude the necessary self-respect to
gain the trust of others. More and more firms believe that ethics training and an ethics culture
create strategic advantage. Firms should align ethical and strategic decision making by
incorporating ethical considerations into long-term planning, by integrating ethical decision
making into the performance appraisal process, by the reporting of unethical practices, and by
monitoring departmental and corporate performance regarding ethical issues.
Social Responsibility
Social responsibility refers to actions an organization takes beyond what is legally required to
protect or enhance the well-being of living things. Some strategists agree with Ralph Nader, who
proclaims that organizations have tremendous social obligations. Nader points out, for example,
that ExxonMobil has more assets than most countries and because of this, and such firms have an
obligation to help society cure its many ills. Other people, however, agree with the economist
Milton Friedman, who asserts that organizations have no obligation to do any more for society
than is legally required. Friedman contends that it is irresponsible for a firm to give moniesto
charity.
Do you agree more with Nader or Friedman? Surely, we can all agree that the first social
responsibility of any business must be to make enough profit to cover the costs of the future
because if this is not achieved, no other social responsibility can be met. Indeed, no social need
can be met by the firm if the firm fails. Strategists should examine social problems in terms of
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potential costs and benefits to the firm, and focus on social issues that could benefit the firm
most. For example, should a firm avoid lying off employees to protect the employees’ livelihood,
when that decision may force the firm to liquidate?
Social Policy: The term social policy embraces managerial philosophy and thinking at the
highest level of the firm. Social policy concerns what responsibilities the firm has to employees,
consumers, environmentalists, minorities, communities, shareholders, and other groups. After
decades of debate, many firms still struggle to determine appropriate social policies. The impact
of society on business and vice versa is becoming more pronounced each year. Corporate social
policy should be designed and articulated during strategy formulation set and administered
during strategy implementation and reaffirmed or changed during strategy evaluation.
Environmental Sustainability
Environmental Sustainability refers to the extent that an organization’s operations and actions
protect, mend, and preserve rather than harm or destroy the natural environment. The strategies
of both companies and countries are increasingly scrutinized and evaluated from a natural
environment perspective. Companies such as Wal-Mart now monitor not only the price its
vendors offer for products, but also how those products are made in terms of environmental
practices. A growing number of business schools offer separate courses and even a concentration
in environmental management.
According to the International Standards Organization (ISO), the word environment is defined as
“surroundings in which an organization operates, including air, water, land, natural resources,
flora, fauna, humans, and their interrelation.”Employees, consumers, governments, and society
are especially resentful of firms that harm rather than protect the natural environment.
Conversely, people today are especially appreciative of firms that conduct operations in a way
that mends, conserves, and preserves the natural environment. Consumer interest in businesses
preserving nature’s ecological balance and fostering a clean, healthy environment is high.
No business wants a reputation as being a polluter. A bad sustainability record will hurt the firm
in the market, jeopardize its standing in the community, and invite scrutiny by regulators,
investors, and environmentalists. Managers and employees today must be careful not to ignore,
conceal, or disregard a pollution problem, or they may find themselves personally liable.
ISO 14000 Certification
International organization for standardization (ISO) is a network of the national standards
institutes of 147 countries, one member per country. ISO is the world’s largest developer of
sustainability standards. Widely accepted all over the world, ISO standards are voluntary because
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ISO has no legal authority to enforce their implementation. ISO itself does not regulate or
legislate. Governmental agencies in various countries have adopted ISO standards as part of their
regulatory framework, and the standards are the basis of much legislation. Adoptions are
sovereign decisions by the regulatory authorities, governments, and/or companies concerned.
ISO 14000refers to a series of voluntary standards in the environmental field. The ISO14000
families of standards concerns the extent to which a firm minimizes harmful effects on the
environment caused by its activities and continually monitors and improves its own
environmental performance. Included in the ISO 14000 series are the ISO 14001 standards in
fields such as environmental auditing, environmental performance evaluation, environmental
labeling, and life-cycle assessment.ISO14001 is a set of standards adopted by thousands of firms
worldwide to certify to their constituencies that they are conducting business in an
environmentally friendly manner.
E. Setting Goals and Objectives
Objectives: Objectives are organizations performance targets, the results and outcomes it wants
to achieve. They function as a yardstick for tracking an organization’s performance and progress.
Objectives are the results of planned activity. They should be stated as action verbs and tell what
is to be accomplished by when and quantified if possible. The achievement of corporate
objectives should result in the fulfillment of a corporation’s mission. In effect, this is what
society gives back to the corporation when the corporation does a good job of fulfilling its
mission.
The term goal is often used interchangeably with the term objective. We prefer to differentiate
the two terms. In contrast to an objective, we consider a goal as qualitative statement of what one
wants to accomplish, with no quantification of what is to be achieved.
For example, a simple statement of “increased profitability” is thus a goal, not an objective,
because it does not state how much profit the firm wants to make the next year. A good objective
should be action-oriented and begin with the word to. An example of an objective is “to increase
the firm’s profitability in 2015 by 10% over 2014.”
Some of the areas in which a corporation might establish its goals and objectives are:
Profitability (net profits) Shareholder wealth (dividends plus stock
Efficiency (low costs, etc.) price appreciation)
Growth (increase in total assets, sales, etc.) Utilization of resources (ROE or ROI)
Reputation (being considered a “top” firm)

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Contributions to employees (employment Market leadership (market share)

security, wages, diversity) Technological leadership (innovations,
Contributions to society (taxes paid, creativity)
participation in charities, providing a needed Survival (avoiding bankruptcy)
product or service)
Long-Term Objectives: Long-term objectives represent the results expected from pursuing
certain strategies. Strategies represent the actions to be taken to accomplish long-term objectives.
The nature of long-term objectives: Objectives should be quantitative, measurable, realistic,
understandable, challenging, hierarchical, obtainable, and congruent among organizational units.
Each objective should also be associated with a timeline. Objectives are commonly stated in
terms such as growth in assets, growth in sales, profitability, market share, degree and nature of
diversification, degree and nature of vertical integration, earnings per share, and social
responsibility.
Objectives provide a basis for consistent decision making by managers whose values and
attitudes differ. Objectives serve as standards by which individuals, groups, departments,
divisions, and entire organizations can be evaluated. Long-term objectives are needed at the
corporate, divisional, and functional levels of an organization. They are an important measure of
managerial performance. Without long-term objectives, an organization would drift aimlessly
toward some unknown end. It is hard to imagine an organization or individual being successful
without clear objectives. Success only rarely occurs by accident; rather, it is the result of hard
work directed toward achieving certain objectives.
The Benefits of Having Clear Objectives
o Provide direction by revealing o Minimize conflicts
expectations o Stimulate exertion
o Allow synergy o Aid in allocation of resources
o Aid in evaluation by serving as o Aid in design of jobs
standards o Provide a basis for consistent
o Establish priorities decision making
o Reduce uncertainty

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