Strategic Direction Chapter 2. Objectives Upon completion of this chapter, you should be able to: Determine your organisation’s ultimate goals and business.

Strategic Direction

Chapter 2

Objectives

Upon completion of this chapter, you should be able to:• Determine your organisation’s ultimate goals and business

philosophy• Define the purpose of your organization• Identify your organisation’s strategic direction-mission and

vision• Critically assess the strength of values and culture in your

business• Establish the different stakeholders and their levels of

power• Strategically identify and plan your organisation’s strategic

goals

• Businesses must determine the basic goals and philosophies that will shape its strategic direction.

• This fundamental purpose that sets a firm apart from other firms of its type and identifies the scope of its operations in product and market terms with an objective and goals to achieve is defined as the company’s mission and vision.

• In order to establish and achieve personally your overall goals and aspirations, it is first very important to establish a clear direction for the organizational level.

• This is usually expressed in your firm’s mission and vision statement whereby its values and priorities are given a huge emphasis.

Purpose of the Organisation

Impossible to develop a strategy if the organisation’s purpose remains unclear. Whether private or public company, every organization needs to develop a purpose and develop a common understanding of the main elements

Shaping the Purpose - refer to diagram on Page 42

Johnson and Scholes, 2005, illustrate there are 5 main areas to be considered, i.e.

• What is our area of activity – and what should it be?• Purpose needs to be narrow enough to be actionable and broad to

allow scope for development• It is the organisation’s customers that define the nature of the

organization and therefore shaped the breadth of its purpose. • Competitive resources of an organization will also define its

purpose.• Thus there needs to be a balance between customers and

resources – purpose of the future as much as the present.

• What kind of organization do we wish to be?• All organizations have some choice to develop in two related areas:

– Culture and style (organizational culture)– Challenges to be posed to the members of the organization.

What is the relative importance of shareholders and stakeholders?• Shareholder perspective – maximizing shareholder value – high share prices, profit

growth, larger dividends, etc.• Stakeholder perspective – reinvestment of profits – shareholders supply financial

capital to which is added to the managerial expertise of the organisation’s senior managers, the labour input of other workers, the expertise and skills of its suppliers, etc.

Do we want to grow the organization?• Organizations need to see growth as at least part of their purpose. A firm is never

static – it is either growing or stagnating. What is our relationship with the immediate environment and with society in general?• Purpose cannot be set without some consideration of the environment within

which the organization operates.• Two perspectives: the immediate environment and the wider context of society in

general.– Immediate environment, the main problems affecting purpose are likely to be general

turbulence and strong competitive activity.– Wider environment, there may be some need to define purpose in the context of the

pressures and demands of that society.

Conclusions: The Purpose-Process-Outcome (P-P-O) paradigm

One response proposed by Lynch R, 2004 to developing an organizational purpose is to simplify purpose down to a single leading role such as:

• Growth• Survival• Profit maximization

Lynch revealed 3 guidelines on purpose that can be developed:

• The importance of value added: every organization need to consider where and how it adds value to its input.

• The balance between shaping and being shaped by the environment: some organizations may choose to shape the environment in which they operate, as well as coping with changes in the environment.

• The changing nature of purpose over time – the P-P-O Paradigm: the organizational purpose will be delivered by the process of strategy development. This will provide an outcome, i.e. profit or service, that will then feed back into purpose at a later stage.

The Organisation’s Vision“A vision articulates a view of a realistic, credible, attractive future for the

organization, a condition that is better in some important ways than what now exists.”

• Vision can be defined as a mental image of the future of the organization.• 5 reasons to develop strategic vision:

– Most organizations will compete for business and resources. To explore the vision, they will have ambitions that go beyond their immediate future and purpose.

– The organisation’s mission and objectives may be stimulated in a positive way by the strategic options that are available from a new vision.

– There may be major strategic opportunities from exploring new development areas that go beyond the existing market boundaries and organizational resources.

– Simple market and resource projections for the next few years will miss the opportunities opened up by a whole new range of possibilities.

– Vision provides a desirable challenge for both senior and junior managers.

Vision therefore is • A backdrop for the development of the

purpose and strategy of the organization.• Future picture with purpose being the more

immediate and broader role and tasks.• Lead to a change in purpose

Features of an effective vision statement may include:

• Clarity and lack of ambiguity (uncertainty)• Paint a vivid and clear picture, not ambiguous• Describing a bright future (hope)• Memorable and engaging expression• Realistic aspirations, achievable• Alignment with organizational values and culture

rational• Time bound if it talks of achieving any goal or

objective.

In order to become really effective, an organizational vision statement must become assimilated into the organization’s culture. Leaders have the responsibility of communication the vision regularly, creating narratives that illustrate the vision, acting as role-models by embodying the vision and encouraging others to craft their own personal vision compatible with the organisation’s overall vision. Examples of vision statement see page 49.

The Mission Statement

• The mission statement answers gives the purpose of the organization as it indicates its values and culture and it lays down guidelines for the way in which the organization conducts its business.

• It establishes the basis from which strategy can be developed.

• The mission statement addresses the following questions:

• Why is the firm in business?• What are our economic goals?• What is our operating philosophy in terms of

quality, company image and self-concept?• What are our core competencies and competitive

advantages?• What customers do and can we serve?• How do we view our responsibilities to

stockholders, employees, communities, environment, social issues and competitors?

A mission statement must reflect the environment in which the organization is operating, so it may be the result of a period of analyzing the external environment and the internal environment and consultation with stakeholders.

A Distinctive Competitive Advantage

• Competitive advantage is an advantage that one firm has relative to competing firms. The source of the advantage can be something the company does that is distinctive and difficult to replicate, aka core competencies.

• To be sustainable, the advantage must be:• Distincitive capabilities – need to be supported by

an appropriate set of complementary reproducible capabilities to enable your company to sell its distinctive capabilities in the market it operates.

• Reproducible capabilities – are those that can be bought or created by your competitors and this by themselves cannot be a source of competitive advantage. Eg. Technical, marketing and financial.

Values and Cultures

• Defined by Schien – organizational culture is the specific collection of values and norms that are shared by people and groups in an organization and that control the way they interact with each other and with stakeholders outside the organization.

• Organizational values are beliefs and ideas about what kinds of goals members of an organization should pursue and ideas about the appropriate kinds or standards of behavior organizational members should use to achieve these goals.

Geert Hofstede, explained that values lie at the heart of a culture and help explain the way people behave and act. He points out that values are only visible through its rituals, heroes and symbols.

Hofstede identified that the visible elements of an organization’s culture are:

• Rituals and routines• Stories• Symbols• Power structures• Organizational structures• Control systems

Creation of strong cultures is believed to stem from:• Top management• High investment in communication networks and

processes• Rituals to strengthen and reward appropriate behavior• Use of corporate heroes• Importance attached to physical environment at work• Careful selection of employees• Emphasis on individual contribution• Strong induction and training programmes

Stakeholder Analysis

Identifying Stakeholders• Stakeholders are individuals and groups who

have an interest in the organization and may therefore wish to influence its purpose, mission and objectives.

Conflict of Interest amongst Stakeholders

• The organization needs to take them into account in formulating its mission and objectives. If it does not, they may object and cause real problems for the organization.

Stakeholders Power Study

6 major steps as illustrated by Lynch:• Identify the major stakeholders• Establish their interests and claims on the organization, especially

as new strategy initiatives are developed.• Determine the degree of power that each group holds through its

ability to force of influence change as new strategies are developed.

• Development of mission, objectives and strategy, possibly prioritized to minimize power clashes

• Consider how to divert trouble before it starts, possibly by negotiating with key groups

• Identify the sanctions available and if necessary, apply them to ensure the purpose is formulated and any compromise reached.

Stakeholder Mapping: The Power/Interest Matrix – Refer to page 61

• The matrix indicates the type of relationship which the organization will need to establish with each stakeholder group.

• Quadrant D – should be a key consideration during formulating and evaluation of new strategies

• Quadrant C – often most difficult stakeholders• Quadrant B – need to be properly addressed – largely

through information. They can be crucially important ‘allies’ in influencing the attitudes of more powerful stakeholders.

• The value of this type of stakeholder mapping is in assessing the following:

• Whether the political/cultural situation is likely to undermine the adoption of a particular strategy.

• Who the key blockers and facilitators of change are likely to be and therefore, whether strategies need to be pursued to reposition certain stakeholders.

• The extent to which maintenance activities will be needed to discourage stakeholders from repositioning themselves.

Corporate Governance

• As Lynch illustrate, corporate governance relates primarily to the selection and conduct of the senior officers of the organisation and their relationships with owners, employees and others who have an interest in the organization.

• This process goes beyond selecting and reviewing the conduct of senior officers but also includes a review and approval process for the main corporate strategies that have been developed by the officers.

The Power of CG

• The importance here lies in the power that is given to the senior officers to run the affairs of the organization. It also takes into account the abuse of such positions and powers along with methods of regulating such unethical behaviours.

Governance and Information Flows• One of the key aspects of CG is that of information and its

availability. Good quality information will encourage responsible conduct.

• Another important form of check and balance comes in the form of non-executives. The appointment of these independent directors has been seen as a means of ensuring that the conduct of the organization is beyond reproach.

• CG also has another important requirement that often insists on a separation between the chairman and the CEO.

• Chairman – the most senior person in the organization but without day-to-day responsibility for its operations. They concentrate on relations outside the organization.

• CEO – the most senior manager with responsibility for day-to-day operations. They concentrate on relations within the organization.

Goal setting and mission accomplishment

A goal is a statement that clearly describes actions to be taken or tasks to be accomplished by a company, a department or an individual.

The dual purposes of goal setting are:• To establish a measure for evaluating the success

of the business• Set priorities for its management and staff, who

should be held accountable for the accomplishment of the goals.

• Goals help keep management focused on success and away from distractive activities that drain business resources and accomplish little.

• Goals and plans are cascaded down from the corporate level to businesses and operations, as business plans and operational plans.

• Goals define in measurable terms, what is to be achieved in a given timescale.

Hitt & Irelance, 2002 – characteristics of a business goal are:

• Derived from the mission statement• Task-oriented• Short term• Specific• Challenging

• (refer to page 68 for further explanation)