Strategic management army 2015 chp2 (1)

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STRATEGIC MANAGEMENT PPB6024

ABDUL RAHEEM MOHAMAD YUSOF, PhD.

Based on Fred R.David’sStrategic Management: Concept and Cases

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CHAPTER 2: THE BUSINESS VISION AND MISSION

After studying and discussing this chapter, you should be able to do the following:1. Describe the nature and role of vision and mission statements in strategic management.2. Discuss why the process of developing a mission statement is as important as the

resulting documents. 3. Identify the components of mission statements.4. Discuss how clear vision and mission statements can benefit other strategic-

management activities.5. Evaluate mission statements of different organizations.6. Write good vision and mission statements

“A business is not defined by its name, statutes, or articles of incorporation. It is defined by the business mission. Only a clear definition of the mission and purpose of the organization makes possible clear and realistic business objectives.” – Peter Drucker

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FOOD FOR THOUGHT

• The global economic recession has resulted in many firms changing direction and thereby altering their entire vision and mission in order to survive.

• For example, in the Philippines, the largest food and beverage company, San Miguel Corp., recently diversified by purchasing Petron Corp., the country’s largest oil refiner.

• San Miguel also purchased Meralco, formally named Manila Electric, thus broadening its mission to include energy-related businesses.

“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

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The Strategic-Management Model

Develop Vision and Mission Statements

Chapter 2

Perform External Audit

Chapter 3

Perform Internal Audit

Chapter 4

Establish Long-Term Objectives Chapter 5

Generate,Evaluate, and

Select StrategiesChapter 6

Implement Strategies –

Management Issues

Chapter 7

Implement Strategies – Marketing,

Finance, Accounting,

R&D, MIS IssuesChapter 8

Measure and

EvaluatePerformance

Chapter 9

Chapter 10: Business Ethics, Social Responsibility, and Environmental Sustainability

Chapter 11: Global/ International Issues

Strategy Formulation Strategy Implementation StrategyEvaluation

Source: Fred R.David, “How Companies Define Their Mission,” Long Range Planning 22, No. 3 (June 1988): 40

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MANAGEMENT IN ACTION: NOVARTIS INTERNATIONAL AG

• Novartis AG is performing very well in the global recessionary environment. Based in Basel, Switzerland, this pharmaceutical giant recently paid the largest food company in the world, Nestle SA, a total of $38.5 billion for a 77% majority stake in Alcon (which is subject to required regulatory approvals) – aU.S.-based eye-care company best known for its contact lens solutions.

• The purchase will be the largest acquisition ever in Swiss corporate history to-date. Novartis continues to move into faster-growing areas of health care as its traditional branded prescription-drug sales slow. For instance, Novartis has existing generic drug and vaccines businesses, two industries projected to grow nearly 10 percent annually through 2014.

• Novartis is making other related diversification moves as its best-selling product, Diovan (a hypertension drug), with annual sales of $6 billion, losses patent protection in Europe in 2011 and in the U.S. in 2012.

• Its second best selling product Glives/Gleevec, a blood-cancer drug, losses its patent protection in 2015. Novartis is also increasing its focus more on emerging markets versus European or U.S. markets as emerging market are growing so much more rapidly.

• For all of 2009, Novartis’ sales rose 7 percent to $44.3 billion. New products increased the company’s pharmaceuticals sales and the company’s Vaccines and Diagnostics division delivered over one million influenza A (H1N1) pandemic vaccine doses to governments around the world.

• In early 2010, Equa ®, Exforge ® and Afinitor ® were approved in Japan for Type 2 diabetes, high blood pressure and kidney cancer, respectively. This followed six Novartis products approvals in 2009 in Japan, the world’s second largest pharmaceutical market.

• Web site: www.Novartis.com• Source: Based on Anita Greil and Dana Cimilluca, “Novartis Sets Big Eye-Care Deal,” Wall Street Journal (Tuesday, January 5, 2010): B1

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2.1 What Do We Want to Become?

• The vision statement should be established first and foremost.• Important for managers and executives in any organization to agree on the basic vision that the firm strives to achieve in

the long term.• A clear statement should answer the basic question: “What do we want to become?”• The vision statement should be short, preferably one sentence, and as many managers as possible should have input

into developing the statement.

UPSI Menjadi Universiti yang bitara, cemerlang dalam kepimpinan pendidikan berlandaskan kegemilangan sejarah serta menerajui perubahan global.

Samsung “Inspire the World, Create the Future.”

General Motors: To be the world leader in transportation products and related services.

Air Asia To be the largest low cost airline in Asia and serving the 3 billion people who are currently underserved with poor connectivity and high fares.

Sime Darby To be a leading multinational corporation delivering sustainable value to all stakeholders.

Example of Vision Statement:

VISION

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2.2 What Is Our Business? MISSION

• DRUCKER: Asking the question “What is our business?” is synonymous with asking the question “What is our mission?”• An enduring statement of purpose that distinguishes one organization from other similar enterprises.• The mission statement is a declaration of an organization’s “reason for being.”• A clear mission statement is essential for effectively establishing objectives and formulating strategies.• A mission statement reveals what an organization wants to be and whom it wants to serve.• Recognized by practitioners and academics as the first step in strategic management.

Sometimes called:• Creed statement• A statement of purpose• A statement of philosophy• A statement of beliefs• A statement of business principles• A statement “defining our business”

Some strategists spend almost every moment of every day on administrative and tactical concerns, and strategists who rush quickly to establish objectives and implement strategies often overlook the development of a vision and mission statement

Some companies develop mission statements simply because they feel it is fashionable, rather than out of any real commitment.

Firms that develop and systematically revisit their vision and mission statements, treat them as living documents, and consider them to be an integral part of the firm’s culture realize great benefits.

Johnson & Johnson (J&J) managers meet regularly with employees to review, reword, and reaffirm the firm’s vision and mission.

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A business mission is the foundation for priorities, strategies, plans, and work assignments. It is the starting point for the design of managerial jobs and, above all, for the design of managerial structures. Nothing may seem simpler or more obvious than to know what a company’s business is. A steel mill makes steel, a railroad runs trains that carry freight and passengers, an insurance company underwrites fire risks, and a bank lends money. Actually, “What is our business?” is almost always a difficult question and the right answer is usually anything but obvious. The answer to this question is the first responsibility of strategists. Only strategists can make sure that this question receives the attention it deserves and that the answer makes sense and enables the business to plot its course and set its objectives. -

Peter Drucker has the following to say about mission statements:

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

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Examples of mission statements:

PepsiCo We aspire to make PepsiCo 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. And in everything we do, we strive to act with honesty, openness, fairness and integrity.

Dell Dell’s mission is to be the most successful computer company in the world at delivering the best customer experience in markets we serve. In doing so, Dell will meet customer expectations of highest quality; leading technology; competitive pricing; individual and company accountability; best-in-class service and support; flexible customization capability; superior corporate citizenship; and financial stability.

L’Oreal At L’Oreal we believe that lasting business success is built upon ethical standards which guide growth and on a genuine sense of responsibility to our employees, our consumers, our environment and to the communities in which we operate.

Please evaluate and comment the above mission statements.

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2.2.1 Vision versus Mission

“What do we want to become?” = VISION“What is our business?” = MISSION

It can be argued that profit, not mission or vision, is the primary corporate motivator. But profit alone is not enough to motivate people. Profit is perceived negatively by some employees in companies. Employees may see profit as something that they earn and management then uses and even gives away to shareholders.Although this perception is undesired and disturbing to management, it clearly indicates that both profit and vision are needed to motivate a workforce effectively.Shared vision creates a commonality of interests that can lift workers out of the monotony of daily work and put them into a new world of opportunity and challenge.

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2.2.2 The Process of Developing Vision and Mission Statements

Campbell and Yeung emphasizes that the process of developing a mission statement should create and “emotional bond” and “sense of mission” between the organization and its employees.

1. Select several articles about these statements and ask all managers to read these as background information.2. Ask the managers themselves to prepare a vision and mission statement for the organization.3. A facilitator, or committee of top managers should then merge these statements into a single document and distribute

the draft statements to all managers.4. 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.

• Use discussion groups of managers or outside consultant.• Decisions on how best to communicate the vision and mission to all managers, employees, and external constituencies

of an organization are needed when the documents are in final form.

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2.3 Importance (Benefits) of Vision and Mission Statements

• Rarick and Vitton found that firms with formalized mission statement have twice the average return on shareholders’ equity than those firms without formalized mission statement.

• Bart and Baetz found a positive relationship between mission statements and organizational performance.• Business Week reports that firms using mission statements have a 30 percent higher return on certain financial measures

than those without such statements.

King and Cleland recommend that organizations carefully develop a written mission statement in order to reap the following benefits:1. To ensure unanimity of purpose within the organization.2. To provide a basis, or standard, for allocating organizational resources.3. To establish a general tone or organizational climate.4. 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.5. To facilitate the translation of objectives into a work structure involving the assignment of tasks to responsible elements

within the organization.6. 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.

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2.3.1 A Resolution of Divergent Views

• Another benefit of developing a comprehensive mission statement is that divergent views among managers can be revealed and resolved through the process.

• Raising the question often reveals differences among strategists in the organization. Individuals who have worked together for a long time and who think they know each other suddenly may realize that they are in fundamental disagreement.

• Considerable disagreement among an organization’s strategists over vision and mission statements can cause trouble if not resolved.

• In multidivisional organization, strategists should ensure that divisional units perform strategic-management tasks, including the development of a statement of vision and mission. Each division should involve its own managers and employees in developing a vision and mission statement that is consistent with and supportive of the corporate mission.

• An organization that fails to develop a vision statement as well as a comprehensive and inspiring mission statement loses the opportunity to present itself favorably to existing and potential stakeholders.

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2.4 Characteristics of a Mission Statement

2.4.1 A Declaration of Attitude

• A mission statement is more than a statement of specific details; it is a declaration of attitude and outlook. It usually is broad in scope for at least two major reasons:

1. 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. Apple Computer’s mission statement, for example, should not open the possibility for diversification into pesticides; or Ford Motor company’s into food processing.

2. 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.

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Ten Benefits of Having a Clear Mission and Vision

1. Achieve clarity of purpose among all managers and employees.2. Provide a basis for all other strategic planning activities, including the internal and external assessment,

establishing objectives, developing strategies, choosing among alternative strategies, devising policies, establishing organizational structure, allocating resources, and evaluating performance.

3. Provide direction.4. Provide a focal point for all stakeholders of the firm.5. Resolve divergent views among managers.6. Promote a sense of shared expectations among all managers and employees.7. Project a sense of worth and intent to all stakeholders.8. Project an organized, motivated organization worthy of support.9. Achieve higher organizational performance.10. Achieve synergy among all managers and employees.

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2.4.2 A Customer Orientation

A good mission statement describes an organization’s purpose, customers, products or services, markets, philosophy, and basic technology.According to Vern McGinnis, a mission statement should:1. Define what the organization is and what the organization aspires to be,2. Be limited enough to exclude some ventures and broad enough to allow for creative growth,3. Distinguish a given organization from all others,4. Serve as a framework for evaluating both current and prospective activities, and 5. Be stated in terms sufficiently clear to be widely understood throughout the organization.

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.

Good mission statements identify the utility of a firm’s products to its customers.• This is why At&T’s mission statement focuses on communication rather than on telephone;• It is why ExxonMobil’s mission statement focuses on energy rather than on oil and gas;• It is why Union Pacific’s mission statement focuses on transportation rather than on railroads;• It is why Universal Studios’ mission statement focuses on entertainment rather than on movies.

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The following utility statements are relevant in developing a mission statement

• Do not offer me things.• Do not offer me clothes. Offer me attractive looks.• Do not offer me shoes. Offer me comfort for my feet and the pleasure of walking.• Do not offer me a house. Offer me security, comfort, and a place that is clean and happy.• Do not offer me books. Offer me hours of pleasure and the benefit of knowledge.• Do not offer me CDs. Offer me leisure and the sound of music.• Do not offer me tools. Offer me the benefits and pleasure that come from making beautiful things.• Do not offer me furniture. Offer me comfort and the quietness of a cozy place.• Do not offer me things. Offer me ideas, emotions, ambience, feelings, and benefits.

• PLEASE, DO NOT OFFER ME THINGS.

A major reason for developing a business mission statement is to attract customers who give meaning to an organization.

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2.4.3 Mission Statement Components

Nine components:1. Customers – Who are the firm’s customers?2. Products or services – What are the firm’s major

products or services?3. Markets – Geographically, where does the firm

compete?4. Technology – Is the firm technologically current?5. Concern for survival, growth, and profitability – Is

the firm committed to growth and financial soundness?

6. Philosophy – What are the basic beliefs, values, aspirations, and ethical priorities of the firm?

7. Self-concept – What is the firm’s distinctive competence or major competitive advantage?

8. Concern for public image – Is the firm responsive to social, community, and environmental concerns?

9. Concern for employees – Are employees a valuable asset of the firm?

Characteristics of a mission statement:• Broad in scope; do not include monetary amounts, numbers,

percentages, ratios, or objectives• Less than 250 words in length• Inspiring• Identify the utility of a firm’s products• Reveal that the firm is socially responsible• Include nine the nine components• Reconciliatory• Enduring

“The very essence of leadership is that you have to have vision. You can’t blow an uncertain trumpet.” – Theodore Hesburgh

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2.5 Issues for Review and Discussion

1. Explain Novartis AG’s successful global strategy during the 2008 to 2010 economic recession worldwide. Can that strategy be as successful in 2011 and 2012? Explain.

2. Identify from the Internet six mission statement examples. Evaluate the six statements and bring your analysis to class.3. How and why could the process of developing a vision and mission statement vary across countries?4. In rank order of importance, list six benefits of having a clearly defined vision and mission statement.5. Only the fairy story ends “they lived happily ever after.” what is the relevance of this statement to the concepts vision

and mission statement?6. Explain the meaning and significance of the term “reconciliatory” in developing mission statement.7. List the nine mission statement components.8. In order of importance, rank seven characteristics of a mission statement.9. Write a vision and mission statement for a local restaurant in your area.10. Find ten mission statements on the Internet. Evaluate the statements in terms of six characteristics and nine

components.