Chapter 2

CHARTING A COMPANY’S DIRECTION:

VISION AND MISSION, OBJECTIVES, AND STRATEGY

Prepared by: Prof. Romy Sebastian, CMS-GNU

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STRATEGIC MANAGEMENT

♦ Strategic management is the conduct of

drafting, implementing and evaluating cross-
functional decisions that will enable an
organization to achieve its long-term objectives
♦ It is the highest level of managerial activity,
usually performed by the company's Chief
Executive Officer (CEO) and executive team.

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 STRATEGIC MANAGEMENT

♦ A continuous process aimed at keeping an organization as a whole

appropriately matched to its environment
♦ evaluates and controls the business and the industries in which the
company is involved
♦ Assesses and sets goals and strategies to meet all existing and
potential competitors
♦ Keeping the business in tune with management and marketing
forces both outside and inside the firm
♦ “Strategic alignment / consistency” between the organization and its
environment.
♦ reassesses each strategy regularly to determine how it has been
implemented, whether it has succeeded or needs replacement by a
new strategy to meet changed circumstances- new technology, new
competitors, a new economic, social, financial, or political
environment

Prepared by: Prof. Romy Sebastian, CMS-GNU

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The Strategy-Making, Strategy-Executing Process

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 WHAT DOES THE STRATEGY-MAKING,
STRATEGY-EXECUTING PROCESS ENTAIL?

1. Developing a strategic vision, a mission, and a set

of values.
2. Setting objectives for measuring performance and
progress.
3. Crafting a strategy to achieve those objectives.
4. Executing the chosen strategy efficiently and
effectively.
5. Monitoring strategic developments, evaluating
execution, and making adjustments in the vision
and mission, objectives, strategy, or execution as
necessary.
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Strategic Management Process

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 Five-Step Strategic Management Process

1. Forming a strategic vision of where the

organization is headed
● Provide long-term direction
● What kind of enterprise the company is trying to
become
● Infuse the organization with a sense of purpose
2. Setting objectives
● Converting strategic vision into specific
performance outcomes for the company to
achieve
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Five-Step Strategic Management Process

3. Crafting a strategy
4. Implementing and executing it efficiently
and effectively
 Annual Objectives, policies, employee
motivation, resource allocation
5. Evaluating performance, initiating
corrective adjustments in vision, long-term
direction, objectives, strategy, or execution,
based on actual experience, changing
conditions, new ideas and opportunities
 Success today is no guarantee of success
tomorrow
 Success creates new and different problems 2–8

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 STAGE 1: DEVELOPING A STRATEGIC
VISION, A MISSION, AND A SET OF
CORE VALUES

♦ Developing a Strategic Vision:

● Delineates management’s future aspirations
for the business to its stakeholders.
● Provides direction—“where we are going.”
● Sets out the compelling rationale (strategic
soundness) for the firm’s direction.
● Uses distinctive and specific language to set
the firm apart from its rivals.

Prepared by: Prof. Romy Sebastian, CMS-GNU

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STAGE 1: DEVELOPING A STRATEGIC

VISION, A MISSION, AND A SET OF
CORE VALUES

♦ Developing a Strategic Vision:

● Long term business purpose
● Where should the company be headed
● What should its future technology / product /
customer focus be
● What sort of enterprise we want to become
● What industry standing we want to achieve

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 2.1 Wording a Vision Statement—the Dos and Don’ts

The Dos The Don’ts

Graphic: gives picture of kind of company Don’t be vague or incomplete
management is trying to create

Forward-looking and directional: signals Don’t dwell on the present

forthcoming business and strategic changes

Focused: specific, gives guidance in Don’t use overly broad

making decisions and allocating resources language

Desirable: appeals to long-term interests of Don’t state the vision in bland

stakeholders or uninspiring terms
Feasible: within the realm of what the Don’t be generic
company can expect to achieve in due time

Indicate why the directional path makes Don’t rely on superlatives only
good business sense

Distinctive and easy to communicate Don’t run on and on

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Examples of Vision Statements

PepsiCo
♦ "PepsiCo's responsibility is to continually improve all
aspects of the world in which we operate - environment,
social, economic - creating a better tomorrow than
today. Our vision is put into action through programs
and a focus on environmental stewardship, activities to
benefit society, and a commitment to build shareholder
value by making PepsiCo a truly sustainable company.”
Amazon
♦ "Our vision is to be earth's most customer centric
company; to build a place where people can come to
find and discover anything they might want to buy
online."
Prepared by: Prof. Romy Sebastian, CMS-GNU
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 Vision Statement for Coca-Cola
Our vision serves as the framework for our Roadmap and guides every aspect of
our business by describing what we need to accomplish in order to continue
achieving sustainable, quality growth.
• People: Be a great place to work where people are inspired to be the best they
can be.
• Portfolio: Bring to the world a portfolio of quality beverage brands that anticipate
and satisfy people’s desires and needs.
• Partners: Nurture a winning network of customers and suppliers; together we
create mutual, enduring value.
• Planet: Be a responsible citizen that makes a difference by helping build and
support sustainable communities.
• Profit: Maximize long-term return to shareowners while being mindful of our
overall responsibilities.
• Productivity: Be a highly effective, lean and fast-moving organization.
Effective Elements Shortcomings
• Graphic • Makes good business sense • Long
• Focused • Flexible • Not forward-looking

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Vision Statement for UBS

We are determined to be the best global financial services company. We
focus on wealth and asset management, and on investment banking and
securities businesses. We continually earn recognition and trust from
clients, shareholders, and staff through our ability to anticipate, learn and
shape our future. We share a common ambition to succeed by delivering
quality in what we do. Our purpose is to help our clients make financial
decisions with confidence. We use our resources to develop effective
solutions and services for our clients. We foster a distinctive, meritocratic
culture of ambition, performance and learning as this attracts, retains and
develops the best talent for our company. By growing both our client and
our talent franchises, we add sustainable value for our shareholders.
Effective Elements Shortcomings
• Focused • Not forward-looking
• Feasible • Bland or uninspiring
• Desirable • Hard to communicate

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 Vision Statement for Walmart

Saving People’s Money So They Can Live Better

Effective Elements Shortcomings
• Focused • Dwells on the present
• Memorable
• Feasible
• Makes good business sense

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Communicating the Strategic Vision

♦ Why Communicate the Vision:

● Demonstrates top management views about the
firm’s future strategic direction and competitive
efforts.
● Fosters employee commitment to the firm’s chosen
strategic direction.
● Motivates, informs, and inspires internal and external
stakeholders.
● Provides beacon for lower level managers in setting
departmental strategies
● Tool for winning support of organization members for
internal changes
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 Putting the Strategic Vision in Place

♦ Put the vision in writing and distribute it.

♦ Hold meetings to personally explain the
vision and its rationale.
♦ Create a memorable slogan that captures
the essence of the vision.
♦ Emphasize the positive payoffs for making
the vision happen.

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Crafting a Mission Statement

♦ The Mission Statement:

● Describes the firm’s current business and
purpose—“who we are, what we do, and
why we are here.”
● Uses specific language to give the firm its
own unique identity.
● Focus on describing the company’s
business, not on “making profit”
 earning profit is an objective not a mission.

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 The Ideal Mission Statement

♦ Specifies the firm’s present business scope

♦ Identifies the firm’s product or services.
♦ Specifies the buyer needs it seeks to satisfy.
♦ Identifies the customer groups or markets it is
endeavoring to serve.
♦ Specifies its approach to pleasing customers.
♦ Sets the firm apart from its rivals.
♦ Clarifies the firm’s business to stakeholders.
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Mission and Vision Statements examples

The Coca-Cola Company

♦ Our Mission
● Our Roadmap starts with our mission, which is enduring. It
declares our purpose as a company and serves as the
standard against which we weigh our actions and decisions.
 To refresh the world...
 To inspire moments of optimism and happiness...
 To create value and make a difference.

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 Mission and Vision Statements examples

Unichem Laboratories
Vision
♦ "To be a global pharmaceutical company with
increasing focus on innovative research and developed
markets.“

Mission
♦ "To be a caring pharmaceutical company helping to
enhance health through quality products."

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Mission and Vision Statements examples

Lupin Pharmaceuticals
Mission
♦ Lupin Pharmaceuticals, Inc. is committed to bringing
innovative products for the healthcare professional to
improve the health and well being of individuals.

Our Vision
♦ Lupin’s vision is to become a transnational
pharmaceutical company through the development and
introduction of a wide portfolio of branded and generic
products in key markets.

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Linking Vision and Mission with Core Values

♦ Core Values
● Are the beliefs, traits, and behavioral norms that
employees are expected to display in conducting the
firm’s business and in pursuing its strategic vision
and mission.
● Become an integral part of the firm’s culture and
what makes it tick when strongly espoused and
supported by top management.
● Matched with the firm’s vision, mission, and strategy
contribute to the firm’s business success.

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WOW Philosophy: 10 Core Values

♦ Deliver WOW through Service ♦ Build Open and Honest
Relationships With
♦ Embrace and Drive Change
Communication
♦ Create Fun and a Little Weirdness
♦ Build a Positive Team and Family
♦ Be Adventurous, Creative, and Spirit
Open Minded
♦ Do More with Less
♦ Pursue Growth and Learning
♦ Be Passionate and Determined
♦ Be Humble.

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 Core Values for Amazon
♦ Customer We start with the customer and work backward.
Obsession
♦ Innovation If you don’t listen to your customers you will fail. But if you
only listen to your customers you will also fail.
♦ Bias for We live in a time of unheralded revolution and instrumental
Action opportunity–provided we make every minute count.
♦ Ownership Ownership matters when you’re building a great company.
Owners think long – term, please passionately for their
projects and ideas, and are empowered to respectfully
challenge decisions.
♦ High-Hiring When making a hiring decision we ask ourselves: ―Will I
Bar admire this person? Will I learn from this person? Is this
person a superstar?‖
♦ Frugality We spend money on the things that really matter and
believe that frugality breeds resourcefulness, self-
sufficiency and intention.

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Follow-up

♦ How do the core values of Zappos reflect

the value it places on its human capital?
♦ What effects do core values have of the
hiring practices of firms?
♦ Will Amazon’s acquisition of Zappos create
a clash of cultural values?

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 Mission vs Vision Statement
Mission Statement
About: A Mission statement talks about
HOW you will get to where you want
to be. Defines the purpose and
primary objectives related to your
customer needs and team values.
Answer: It answers the question, “What do
we do? What makes us different”
Time: A mission statement talks about the
present leading to its future.
Function: It lists the broad goals for which the
organization is formed. Its prime
function is internal, to define the key
measures of the organization's
success and its prime audience is
the leadership team and
stockholders.
Prepared by: Prof. Romy Sebastian, CMS-GNU
Mission vs Vision Statement
Mission Statement
Change: Your mission statement may
change, but it should still tie
back to your core values,
customer needs and vision.
Developing a What do we do today? For
statement: whom do we do it? What is
the benefit?
Features of Purpose and values of the
an effective: organization. Who are the
organization's primary
"clients" (stakeholders). What
are the responsibilities of the
organization towards the
clients?
Prepared by: Prof. Romy Sebastian, CMS-GNU
Vision Statement
A Vision statement outlines
WHERE you want to be.
Communicates both the
purpose and values of your
business
It answers the question,
“Where do we aim to be?”
A vision statement talks
about your future.
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
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Vision Statement
Your vision should remain intact,
even if the market changes
dramatically, because it speaks
to what you represent, not just
what you do.
What do we want to do going
forward? When do we want to do
it? How do we want to do it?
Clarity and lack of ambiguity.
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
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 STAGE 2: SETTING OBJECTIVES

♦ The Purposes of Setting Objectives:

● To convert the vision and mission into specific,
measurable, timely performance targets.
● To focus efforts and align actions throughout
the organization.
● To serve as yardsticks for tracking a firm’s
performance and progress.
● To provide motivation and inspire employees
to greater levels of effort.
Prepared by: Prof. Romy Sebastian, CMS-GNU
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THE TWO ESSENTIAL KINDS OF

OBJECTIVES TO SET

♦ Financial Objectives ♦ Strategic Objectives

● Communicate top
management’s targets for
financial performance.
● Are focused internally on
the firm’s operations and
activities.
● Are related to a firm’s
marketing standing and
competitive vitality.
● Are focused externally
on competition vis-à-
vis the firm’s rivals.

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 SETTING FINANCIAL OBJECTIVES

Examples of Financial Objectives

♦ An x percent increase in annual revenues
♦ Annual increases in after-tax profits of x percent
♦ Annual increases in earnings per share of x percent
♦ Annual dividend increases of x percent
♦ Profit margins of x percent
♦ An x percent return on capital employed (ROCE) or return on
shareholders’ equity investment (ROE)
♦ Increased shareholder value—in the form of an upward-trending stock
price
♦ Bond and credit ratings of x
♦ Internal cash flows of x dollars to fund new capital investment

Prepared by: Prof. Romy Sebastian, CMS-GNU

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SETTING STRATEGIC OBJECTIVES

Examples of Strategic Objectives

♦ Winning an x percent market share
♦ Achieving lower overall costs than rivals
♦ Overtaking key competitors on product performance or quality
or customer service
♦ Deriving x percent of revenues from the sale of new products introduced
within the next five years
♦ Having broader or deeper technological capabilities than rivals
♦ Having a wider product line than rivals
♦ Having a better-known or more powerful brand name than rivals
♦ Having stronger national or global sales and distribution capabilities
than rivals
♦ Consistently getting new or improved products and services to market
ahead of rivals
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 Good Strategic Performance Is the Key
to Better Financial Performance
♦ Good financial performance is not enough:
● Current financial results are lagging indicators of
past decisions and actions which does not translate
into a stronger competitive capability for delivering
better financial results in the future.
● Setting and achieving stretch strategic objectives
signals a firm’s growth in both competitiveness and
strength in the marketplace.
● Good strategic performance is a leading indicator
of a firm’s increasing capability to deliver improved
future financial performance.

Copyright © 2012 The McGraw-Hill Companies, Inc. 2–33

EMPLOYING A BALANCED SCORECARD

♦ A balanced scorecard measures a firm’s

optimal performance by:
 Placing a balanced emphasis on achieving
both financial and strategic objectives.
 Avoiding tracking only financial performance and
overlooking the importance of measuring whether
a firm is strengthening its competitiveness and
market position.

The surest path to sustained future profitability year after year is to

relentlessly pursue strategic outcomes that strengthen a firm’s business
position and give it a growing competitive advantage over rivals!

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 THE MERITS OF SETTING STRETCH
OBJECTIVES

♦ Setting stretch objectives promotes better

company performance because stretch targets:
● Push a firm to be more inventive.
● Increase the urgency for improving financial
performance and competitive position.
● Cause the firm to be more intentional and
focused in its actions.
● Act to prevent complacent coasting and easy
achievement of ho-hum performance outcomes.

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THE NEED FOR SHORT-TERM AND

LONG-TERM OBJECTIVES

♦ Short-Term Objectives:
● Focus attention on quarterly and annual
performance improvements to satisfy near-
term shareholder expectations.
♦ Long-Term Objectives:
● Force consideration of what to do now to
achieve optimal long-term performance.
● Stand as a barrier to an undue focus on
short-term results.

Prepared by: Prof. Romy Sebastian, CMS-GNU

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 THE NEED FOR OBJECTIVES AT ALL
ORGANIZATIONAL LEVELS

♦ Breaks down performance targets for

each of the organization’s separate units.
♦ Fosters setting performance targets that
support achievement of firm-wide
strategic and financial objectives.
♦ Extends the top-down objective-setting
process to all organizational levels.

Prepared by: Prof. Romy Sebastian, CMS-GNU

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 STAGE 3: CRAFTING A STRATEGY

♦ Strategy Making:
● Addresses a series of strategic how’s.
● Requires choosing among strategic alternatives.
● Promotes actions to do things differently from
competitors rather than running with the herd.
● Is a collaborative team effort that involves
managers in various positions at all
organizational levels.

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Who Is Involved in Strategy Making?

♦ Chief Executive Officer (CEO)

● Has ultimate responsibility for leading the strategy-making
process as strategic visionary and as chief architect of
strategy.
♦ Senior Executives
● Fashion the major strategy components involving their areas
of responsibility.
♦ Managers of subsidiaries, divisions, geographic
regions, plants, and other operating units (and key
employees with specialized expertise)
● Utilize on-the-scene familiarity with their business units to
orchestrate their specific pieces of the strategy.

Copyright © 2012 The McGraw-Hill Companies, Inc. 2–40

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 Why Is Strategy-Making Often
a Collaborative Process?
♦ The many complex strategic issues involved and
multiple areas of expertise required can make the
strategy-making task too large for one person or a
small executive group.
♦ When operations involve different products, industries
and geographic areas, strategy-making authority must
be delegated to functional and operating unit managers
such that all managers have a strategy-making role—
ranging from major to minor—for the area they head!

Copyright © 2012 The McGraw-Hill Companies, Inc. 2–41

The Strategy-Making Hierarchy

Corporate Multibusiness Strategy—how to gain synergies from managing a

Strategy portfolio of businesses together rather than as separate businesses

Two-Way Influence

• How to strengthen market position and gain competitive advantage

Business
• Actions to build competitive capabilities of single businesses
Strategy
• Monitoring and aligning lower-level strategies

Two-Way Influence

• Add relevant detail to the how’s of the business strategy

Functional Area
• Provide a game plan for managing a particular activity in ways that
Strategies
support the business strategy

Two-Way Influence

• Add detail and completeness to business and functional strategies

Operating
• Provide a game plan for managing specific operating activities with
Strategies
strategic significance

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A Company’s Strategy-
Making Hierarchy

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The Concept of Strategic Intent

An organization exhibits strategic intent when it

relentlessly pursues an ambitious strategic
objective, concentrating the full force of its
resources and competitive actions on
achieving that objective!

Copyright © 2012 The McGraw-Hill Companies, Inc. 2–44

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 Characteristics of Strategic Intent

♦ Indicates firm’s intent to making quantum gains in

competing against key rivals and to establishing itself as
a winner in the marketplace, often against long odds.
♦ Involves establishing a grandiose performance target
out of proportion to immediate capabilities and market
position but then devoting the firm’s full resources and
energies to achieving the target over time.
♦ Entails sustained, aggressive actions to take market
share away from rivals and achieve a much stronger
market position.

Copyright © 2012 The McGraw-Hill Companies, Inc. 2–45

What Is a Strategic Plan?

Elements of a Firm’s
Strategic Plan

Its strategic vision, business

mission, and core values

Its strategic and financial

objectives

Its chosen strategy

Copyright © 2012 The McGraw-Hill Companies, Inc. 2–46

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 What Is a Strategic Plan?

♦ The process of developing a comprehensive document

that sets forth what an organization is working to
accomplish and how it intends to succeed
● Strategic clarity
 Vision, Mission statement
● Strategic priorities
 What specific actions and activities must take place to
achieve the intended impact
● Resource implications
 To pursue the priorities, and the plan to secure them
● Performance measures
 Establishing the quantitative and qualitative milestones to
measure progress

Copyright © 2012 The McGraw-Hill Companies, Inc. 2–47

Four main components of strategic planning

♦ Strategic clarity
● Vision, Mission statement
♦ Strategic priorities
● What specific actions and activities must take place
to achieve the intended impact
♦ Resource implications
● To pursue the priorities, and the plan to secure them
♦ Performance measures
● Establishing the quantitative and qualitative
milestones to measure progress

Copyright © 2012 The McGraw-Hill Companies, Inc. 2–48

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 STAGE 4: EXECUTING THE STRATEGY

♦ Converting strategic plans into actions

requires:
● Directing organizational action.
● Motivating people.
● Building and strengthening the firm’s
competencies and competitive capabilities.
● Creating and nurturing a strategy-supportive
work climate.
● Meeting or beating performance targets.
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Managing the Strategy Execution Process

♦ Staffing the firm with the needed skills and expertise.

♦ Building and strengthening strategy-supporting
resources and competitive capabilities.
♦ Organizing work effort along the lines of best practice.
♦ Allocating ample resources to the activities critical to
strategic success.
♦ Ensuring that policies and procedures facilitate rather
than impede effective strategy execution.

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 Managing the Strategy Execution Process

♦ Installing information and operating systems that enable

effective and efficient performance.
♦ Motivating people and 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 and drive continuous
improvement of the strategy execution processes.

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STAGE 5: EVALUATING PERFORMANCE

AND INITIATING CORRECTIVE
ADJUSTMENTS

♦ Evaluating Performance:
● Deciding whether the enterprise is passing the
three tests of a winning strategy—good fit,
competitive advantage, strong performance.
♦ Initiating Corrective Adjustments:
● Deciding whether to continue or change the
firm’s vision and mission, objectives, strategy,
and/or strategy execution methods.
● Based on organizational learning.
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 THE ROLE OF THE BOARD OF DIRECTORS
IN CORPORATE GOVERNANCE

♦ Obligations of the Board of Directors:

● Critically appraise the firm’s direction, strategy, and
business approaches.
● Evaluate the caliber of senior executives’ strategic
leadership skills.
● Institute a compensation plan that rewards top
executives for actions and results that serve
stakeholder interests—especially shareholders.
● Oversee the firm’s financial accounting and reporting
practices compliance with the Sarbanes-Oxley Act.

Prepared by: Prof. Romy Sebastian, CMS-GNU

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Achieving Effective Corporate Governance

♦ A strong, independent board of directors:

● Is well informed about the firm’s performance.
● Guides and judges the CEO and other executives.
● Can curb management actions the board believes
are inappropriate or unduly risky.
● Can certify to shareholders that the CEO is doing
what the board expects.
● Provides insight and advice to top management.
● Is actively involved in debating the pros and cons
of key strategic decisions and actions.

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 Reasons why strategic plans fail

♦ Inability to predict environmental reaction

● What will competitors do
 Fighting brands
 Price wars
● Will government intervene
♦ Over-estimation of resource competence
● Can the staff, equipment, and processes handle the new
strategy
● Failure to develop new employee and management skills
♦ Failure to coordinate
● Reporting and control relationships not adequate
● Organizational structure not flexible enough

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Reasons why strategic plans fail

♦ Failure to obtain senior management commitment

● Failure to get management involved right from the start
● Failure to obtain sufficient company resources to accomplish
task
♦ Failure to obtain employee commitment
● New strategy not well explained to employees
● No incentives given to workers to embrace the new strategy
♦ Under-estimation of time requirements
● No critical path analysis done
♦ Poor communications
● Insufficient information sharing among stakeholders
● Exclusion of stakeholders and delegates

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 Reasons why strategic plans fail

♦ Failure to follow the plan

● No follow through after initial planning
● No tracking of progress against plan
● No consequences for above
♦ Failure to manage change
● Inadequate understanding of the internal resistance to change
● Lack of vision on the relationships between processes,
technology and organization
♦ Failure to understand the customer
● Why do they buy
● Is there a real need for the product
● inadequate or incorrect marketing research

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