Chapter 4: Strategic Direction

CHAPTER 4 STRATEGIC DIRECTION

CHAPTER TOPICS: Strategic direction refers to the organizations vision of where it wants to go and how it serves its stakeholders. This chapter addresses organizational identity, vision, mission, business definition, values and purpose, and corporate social responsibility. LEARNING OBJECTIVES: At the conclusion of this chapter, students should understand: Sources of influence on an organizations strategic direction. The elements of well-written mission and vision statements and their importance. . Business definition and its evolution over time. The importance of proactive management of stakeholders. The importance of linking values and strategy, establishing a foundation of organizational ethics. The components of corporate social responsibility and the links to organization performance.

LECTURE OUTLINE: I. Opening Vignette ROYAL PHILIPS (excerpted here) With sales in excess of Eur 30 billion, Royal Philips Electronics of the Netherlands is one of the world's biggest electronics companies and Europe's largest. Their primary businesses areas are domestic appliances and personal care, medical systems, lighting, semiconductors and, of course, consumer electronics. The company has major manufacturing, sales, and service operations in dozens of countries around the globe. At the heart of this conglomerate are broad mission and vision statements: Our Mission We improve the quality of people's lives through the timely introduction of meaningful technological innovations.

Chapter 4: Strategic Direction Our Vision In a world where technology increasingly touches every aspect of our daily lives, we will be a leading solutions provider in the areas of healthcare, lifestyle and enabling technology, aspiring to become the most admired company in our industry as seen by our stakeholders. The company has also developed a set of corporate values that guide the decisions of people throughout their worldwide organization: They are to 1) delight customers, 2) deliver on commitments, 3) develop people and 4) depend on each other. In addition, Philips is very direct in acknowledging its responsibilities to society and the environment: At Philips, we believe sustainable development is a necessity and the right thing to do. we are in the unique position to link our brand heritage to the challenge of improving the quality of peoples lives. This is what Philips has done since our founders started the company. For Anton and Gerard Philips there was no difference between business and sustainable business. Putting people at the center was inherent in their way of doing business. You could say sustainability is in our DNA. We have long been integrating the triple bottom line, striving for economic prosperity, environmental quality and social equity.1 A. B. II. A firms strategic direction can be defined in terms of its vision of where it is heading, the businesses in which it is involved, and how it serves its stakeholders. Strategic direction is communicated through mission and vision statements, business definition, values statements and codes of conduct.

Influences on Strategic Direction A. Strategic direction is influenced by forces inside and outside of the firm. 1. The CEO, top management team, and board of directors play an essential role in establishing strategic direction. 2. External force including societal and economic trends will influence direction. 3. The firms own history can be a strong source of influence in that it established a frame of reference that influences decision making. 4. Structural inertia is when there are forces at work that help maintain the status quo.

III.

Organizational Mission and Vision Statements

Chapter 4: Strategic Direction A. An organization's mission provides an important vehicle for communicating ideals and a sense of direction and purpose to internal and external stakeholders. It also can help guide organizational managers in resource allocation decisions.

Sometimes students of strategic management confuse the terms mission and vision. In general, organizational mission is what the organization is and its reason for existing, whereas vision is a forward looking view of what the organization wants to become. Organizations prepare written mission and vision statements to guide internal decisions and help the organization communicate with important constituents including shareholders and the public. IV. A. B. C. Business Definition Business definition involves asking the questions: Who is being satisfied? What is being satisfied? How are customer needs satisfied? The scope of an organization is the breadth of its activities across markets, functions, resource conversion processes, and products. As organizations grow, through their efforts to add products, markets, new business units, they often expand the scope of their activities thereby enlarging their business definition. Some organizations expand their scope to include related diversified business operations and vertical integration moves along the supply chain. Some questions to ask about business definition are: 1. 2. V. What is our business? What will it be? What should it be? What do we stand for? This question is the critical link between ethics and strategy.

D. E.

Organizational Values and Purpose A. Stakeholder management refers to a series of processes associated with attempting to serve the interests of a broad group of stakeholders. 1. Not all stakeholders should receive equal time and attention but no legitimate stakeholder should be neglected. 2. A firm with a reputation for treating stakeholders fairly is more likely to have a trustworthy reputation that can make it easier secure new contracts, alliances, and partnerships. 3. Research findings demonstrate a positive relationship between stakeholder management and firm financial performance.

Chapter 4: Strategic Direction

B.

Enterprise strategy is the term used to join ethical and strategic thinking about an organization. It is the statement of purpose and values of the firm and the way stakeholders will be treated. Organization ethics refers to the value system that is widely adopted by members of an organization. Ethical dilemmas occur when the values of different stakeholders of the organization are in conflict over a particular issue. There are often ethical dilemmas in the gray area around some legal issues. It is often impossible for one person to correct an ethical problem alone. If strong values are not reinforced, it may be difficult for decision makers to know what to do in a crisis. Corporate values statements have become popular in recent years. They are helpful in defining enterprise strategy, but will not ensure compliance. The rewards, systems, and processes of an organization influence compliance with ethical standards. Research shows that good corporate citizens tend to be high performers. Corporate social responsibility contains four major components: economic responsibilities to be productive and meet the needs of customers in society. legal responsibilities to operate within the laws of society. moral obligations to abide by unwritten codes and norms of society. discretionary responsibilities that are voluntary or philanthropic.

C. 1. 2. 3.

D. E. F. 1. 2. 3. 4.

http://www.philips.com/about/company/index.html; visited on August 10, 2006