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Charting a Company’s
Direction: Vision and
Mission, Objectives, and
Strategy
CHAPTER 2
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Learning Objectives

 Grasp why it is critical for company managers to have a clear strategic

vision of where a company needs to head and why.
 Understand the importance of setting both strategic and financial objectives.
 Understand why the strategic initiatives taken at various organizational
levels must be tightly coordinated to achieve companywide performance
targets.
 Learn what a company must do to achieve operating excellence and to
execute its strategy proficiently.
 Become aware of the role and responsibility of a company’s board of
directors in overseeing the strategic management process.
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Chapter Outline

 What Does the Strategy Formulation, Strategy Execution Process Entail?

 Stage 1: Developing a Strategic Vision, a Mission, and Core Values.
 Stage 2: Setting Objectives.
 Stage 3: Crafting a Strategy.
 Stage 4: Implementing and Executing the Chosen Strategy.
 Stage 5: Evaluating Performance and Initiating Corrective Adjustments.
 Corporate Governance: The Role of the Board of Directors in the Strategy
Formulation, Strategy Execution Process.
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What Does the

Strategy
Formulation,
Strategy
Execution
Process Entail?
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What Does the Strategy Formulation,
Strategy Execution Process Entail?

 The managerial process of crafting and executing a company’s strategy is an

ongoing, continuous process consisting of five integrated stages:
1. Developing a strategic vision that charts the company’s long-term direction, a mission
statement that describes the company’s business, and a set of core values to guide the
pursuit of the strategic vision and mission.
2. Setting objectives for measuring the company’s performance and tracking its progress in
moving in the intended long-term direction.
3. Crafting a strategy for advancing the company along the path to management’s
envisioned future and achieving its performance objectives.
4. Implementing and executing the chosen strategy efficiently and effectively.
5. Evaluating and analyzing the external environment and the company’s internal
situation and performance to identify corrective adjustments that are needed in the
company’s long-term direction, objectives, strategy, or approach to strategy execution.
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What Does the Strategy Formulation,
Strategy Execution Process Entail?
Factors Shaping Decisions in the Strategy 7
Formulation, Strategy Execution
Process
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What Does the Strategy Formulation,
Strategy Execution Process Entail?

 The model shown in Figure 2.1 also illustrates the need for management to
evaluate the company’s performance on an ongoing basis.
 The evaluation stage of the strategic management process shown in Figure
2.1 also allows for a change in the company’s vision, but this should be
necessary only when it becomes evident to management that the industry has
changed in a significant way that renders its vision obsolete. Such occasions
can be referred to as strategic inflection points.
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What Does the Strategy Formulation,
Strategy Execution Process Entail?

 The first three stages of the strategic management process make up a

strategic plan.
 A strategic plan maps out where a company is headed, establishes strategic
and financial targets, and outlines the competitive moves and approaches to
be used in achieving the desired business results.
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Stage 1:
Developing a
Strategic Vision,
a Mission, and
Core Values
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Stage 1: Developing a Strategic
Vision, a Mission, and Core Values

 Top management’s views about the company’s direction and future product-
customer-market-technology focus constitute a strategic vision for the
company.
 A clearly articulated strategic vision communicates management’s
aspirations to stakeholders about “where we are going” and helps steer the
energies of company personnel in a common direction.
 Well-conceived visions are distinctive and specific to a particular
organization; they avoid generic, feel-good statements like “We will become
a global leader and the first choice of customers in every market we choose
to serve”—which could apply to any of hundreds of organizations
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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” (like Henry Ford’s famous vision of “a car in every garage”).
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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 —Doesn’t indicate whether or how management intends to alter the
company’s 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 company’s direction.
 Not distinctive —Provides no unique company identity; could apply to companies in any of
several industries (including rivals operating in the same market arena).
 Too reliant on superlatives — Doesn’t say anything specific about the company’s 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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The Importance of Communicating
the Strategic Vision

 A strategic vision has little value to the organization unless it’s effectively
communicated down the line to lower-level managers and employees.
 An effectively communicated vision is a valuable management tool for
enlisting the commitment of company personnel to engage in actions that
move the company in the intended direction.
 Expressing the Essence of the Vision in a Slogan – Creating a short slogan
to illuminate an organization’s direction and then using it repeatedly as a
reminder of “where we are headed and why” helps rally organization
members to hurdle whatever obstacles lie in the company’s path and
maintain their focus.
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Why a Sound, Well-Communicated
Strategic Vision Matters

 A well-thought-out, forcefully communicated strategic vision pays off in

several respects:
1. it crystallizes senior executives’ own views about the firm’s 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;
and
5. it helps an organization prepare for the future.
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Developing a Company Mission
Statement

 The defining characteristic of a well-conceived strategic vision is what it says about the
company’s future strategic course—“where we are headed and what our future product-
customer-market-technology focus will be.”
 The mission statements of most companies say much more about the enterprise’s present
business scope and purpose—“who we are, what we do, and why we are here.”
 Google’s mission statement, while short, still captures the essence of what the company is
about: “to organize the world’s information and make it universally accessible and useful.”
 An example of a not-so-revealing mission statement is that of Microsoft. “To help people and
businesses throughout the world realize their full potential” says nothing about its products
or business makeup and could apply to many companies in many different industries.
 A well-conceived mission statement should employ language specific enough to give the
company its own identity.
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Developing a Company Mission
Statement

 Ideally, a company mission statement is sufficiently descriptive to:

 Identify the company’s 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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Linking the Strategic Vision and
Mission with Company Values

 Many companies have developed a statement of values (sometimes called

core values) to guide the actions and behavior of company personnel in
conducting the company’s business and pursuing its strategic vision and
mission.
 These values are the designated beliefs and desired ways of doing things at
the company and frequently relate to such things as fair treatment, honor and
integrity, ethical behavior, innovativeness, teamwork, a passion for
excellence, social responsibility, and community citizenship.
Do companies practice what they preach when it comes to their professed
values? Sometimes no, sometimes yes.
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Stage 2: Setting
Objectives
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Stage 2: Setting Objectives

 The managerial purpose of setting objectives is to convert the strategic vision into specific
performance targets.
Objectives reflect management’s aspirations for company performance in light of the industry’s
prevailing economic and competitive conditions and the company’s internal capabilities.
 Well-stated objectives are quantifiable, or measurable, and contain a deadline for
achievement.
 Concrete, measurable objectives are managerially valuable because they serve as yardsticks
for tracking a company’s performance and progress toward its vision.
 Vague targets such as “maximize profits,” “reduce costs,” “become more efficient,” or
“increase sales,” which specify neither how much nor when, offer little value as a
management tool to improve company performance.
 Ideally, managers should develop challenging, yet achievable objectives that stretch an
organization to perform at its full potential.
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What Kind of Objectives to Set

 Two very distinct types of performance yardsticks are required: those

relating to financial performance and those relating to strategic
performance.
 Financial objectives communicate management’s targets for financial
performance – common financial objectives relate to revenue growth,
profitability, and return on investment.
 Strategic objectives relate to target outcomes that indicate a company is
strengthening its market standing, competitive vitality, and future business
prospects.
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What Kind of Objectives to Set

 A company’s financial objectives are really lagging indicators that reflect the
results of past decisions and organizational activities – the results of past
decisions and organizational activities are not reliable indicators of a
company’s future prospects.
Companies that have been poor financial performers are sometimes able to turn
things around, and good financial performers on occasion fall upon hard times.
 Hence, the best and most reliable predictors of a company’s success in the
marketplace and future financial performance are strategic objectives.
 Strategic outcomes are leading indicators of a company’s future financial
performance and business prospects – the accomplishment of strategic
objectives signals the company is well positioned to sustain or improve its
performance.
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What Kind of Objectives to Set

 For instance, if a company is achieving ambitious strategic objectives, then

there’s reason to expect that its future financial performance will be better than
its current or past performance.
 If a company begins to lose competitive strength and fails to achieve important
strategic objectives, then its ability to maintain its present profitability is highly
suspect.
 Consequently, utilizing a performance measurement system that strikes a
balance between financial objectives and strategic objectives is optimal.
 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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The Balanced Scorecard Approach to
Performance Measurement
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Short-Term and Long-Term
Objectives

 A company’s set of financial and strategic objectives should include both near-
term and long-term performance targets.
 Short-term objectives focus attention on delivering performance improvements
in the current period, while long-term targets force the organization to consider
how actions currently under way will affect the company later.
 Specifically, long-term objectives stand as a barrier to an undue focus on short-
term results by nearsighted management.
When tradeoffs have to be made between achieving long-run and short-run
objectives, long-run objectives should take precedence (unless the achievement of
one or more short-run performance targets has unique importance).
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The Need for Objectives at All
Organizational Levels

 Company objectives need to be broken into performance targets for each of

the organization’s separate businesses, product lines, functional departments,
and individual work units.
 Objective setting is thus a top-down process that must extend to the lowest
organizational levels.
 And it means that each organizational unit must take care to set performance
targets that support—rather than conflict with or negate—the achievement
of companywide strategic and financial objectives.
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Stage 3: Crafting
a Strategy
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Stage 3: Crafting a Strategy

 As indicated earlier, the task of stitching a strategy together entails addressing a

series of hows:
 how to attract and please customers,
 how to compete against rivals,
 how to position the company 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, and
 how to achieve the company’s performance targets.
 It also means choosing among the various strategic alternatives and proactively
searching for opportunities to do new things or to do existing things in new or better
ways.
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Stage 3: Crafting a Strategy

 In most companies, 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.
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A Company’s Strategy-Making
Hierarchy

 Corporate strategy establishes an overall game plan for managing a set of

businesses in a diversified, multi-business company.
 Corporate strategy 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 markets—by acquisition, by creation of a strategic
alliance, or through internal development.
 Business strategy is primarily concerned with strengthening the company’s
market position and building competitive advantage in a single business
company or a single business unit of a diversified multi-business corporation.
 In single-business companies, the corporate and business levels of the strategy-
making hierarchy merge into a single level—business strategy —because the
strategy for the entire enterprise involves only one distinct business.
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A Company’s Strategy-Making
Hierarchy

 Functional-area strategies concern the actions related to particular

functions or processes within a business.
 Operating strategies concern the relatively narrow strategic initiatives and
approaches 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
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Stage 4: Implementing and
Executing the Chosen Strategy

 Managing the strategy execution process includes the following principal

aspects:
 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 company personnel to
perform essential activities.
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Stage 4: Implementing and
Executing the Chosen Strategy

 Managing the strategy execution process includes the following principal

aspects:
 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
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Stage 5: Evaluating Performance and
Initiating Corrective Adjustments

 The fifth stage of the strategy management process—evaluating and

analyzing the external environment and the company’s internal situation
and performance to identify needed corrective adjustments—is the trigger
point for deciding whether to continue or change the company’s vision,
objectives, strategy, and/or strategy execution methods.
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Corporate
Governance: The
Role of the
Board of
Directors in the
Strategy
Formulation,
Strategy
Execution
Process
Corporate Governance: The Role of the Board 39
of Directors in the Strategy Formulation,
Strategy Execution Process

 Although senior managers have lead responsibility for crafting and

executing a company’s strategy, it is the duty of the board of directors to
exercise strong oversight and see that the five tasks of strategic management
are done in a manner that benefits shareholders (in the case of investor-
owned enterprises) or stakeholders (in the case of not-for-profit
organizations).
Corporate Governance: The Role of the Board 40
of Directors in the Strategy Formulation,
Strategy Execution Process

 In watching over management’s strategy formulation, strategy execution

actions, a company’s board of directors has four important corporate
governance obligations to fulfill:
1. Oversee the company’s financial accounting and financial reporting practices.
2. Diligently critique and oversee the company’s direction, strategy, and business
approaches.
3. Evaluate the caliber of senior executives’ strategy formulation and strategy
execution skills.
4. Institute a compensation plan for top executives that rewards them for actions and
results that serve shareholder interests.
Corporate Governance: The Role of the Board 41
of Directors in the Strategy Formulation,
Strategy Execution Process

 Every corporation should have a strong, independent board of directors that:

1. is well informed about the company’s performance,
2. guides and judges the CEO and other top executives,
3. has the courage to curb management actions it believes are inappropriate or
unduly risky,
4. certifies to shareholders that the CEO is doing what the board expects,
5. provides insight and advice to management, and
6. is intensely involved in debating the pros and cons of key decisions and actions.
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Thank You