2nd Lecture-Establishing Direction

8/6/2019 2nd Lecture-Establishing Direction

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ESTABLISHINGESTABLISHING

ORGANIZATIONS DIRECTIONORGANIZATIONS DIRECTION

MISSIONMISSION// VISION,VISION,

OBJECTIVES & STRATEGYOBJECTIVES & STRATEGY


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DIRECTIONDIRECTION--SETTING PROCESSSETTING PROCESS

1.1. Charting Future Strategic PathCharting Future Strategic Path

2.2. Setting ObjectivesSetting Objectives

3.3. Crafting StrategyCrafting Strategy


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11--ChartingChartingFuture Strategic PathFuture Strategic Path


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VISIONVISION

Effective strategy making begins with aEffective strategy making begins with a

vision of where the organization needs tovision of where the organization needs to

head.

head.


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STRATEGIC VISIONSTRATEGIC VISION

Early on in the directionEarly on in the direction--setting process, managers need tosetting process, managers need toaddress the question "What is our business and what will itaddress the question "What is our business and what will itbe?"be?"

Management's views and conclusions about theManagement's views and conclusions about theorganization's future course, the market position it should tryorganization's future course, the market position it should tryto occupy, and the business activities to be pursuedto occupy, and the business activities to be pursuedconstitute aconstitute a strategic visionstrategic vision for the organization.for the organization.

A strategic vision indicates management's aspirations for theA strategic vision indicates management's aspirations for theorganization, providing a panoramic view of "whatorganization, providing a panoramic view of "whatbusinesses we want to be in, where we are headed, and thebusinesses we want to be in, where we are headed, and thekind of organization we are trying to create."kind of organization we are trying to create."

CONTINUEDCONTINUED


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A strategic vision spells out a direction andA strategic vision spells out a direction and

describes the destination.

describes the destination.

Effective visions are clear, challenging, andEffective visions are clear, challenging, andinspiring; they prepare an organization for theinspiring; they prepare an organization for thefuture, and they make sense in the marketplace.future, and they make sense in the marketplace.

A wellA well--conceived, wellconceived, well--worded mission/visionworded mission/visionstatement helps managers manage and servesstatement helps managers manage and servesas a beacon of the enterprise's longas a beacon of the enterprise's long--termterm

direction, helping channel organizational effortsdirection, helping channel organizational effortsand strategic initiatives along the pathand strategic initiatives along the pathmanagement has committed to following,management has committed to following,building a strong sense of organizational identitybuilding a strong sense of organizational identityand purpose, and creating employee buyand purpose, and creating employee buy--in.in.


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Three Elements of a Strategic VisionThree Elements of a Strategic Vision

Use the mission statementmission statementas aas astarting pointstarting point

Develop a strategic visionstrategic vision thatspells out a course to pursue

CommunicateCommunicate the vision in aclearclearand excitingexcitingmanner


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Mission StatementMission StatementDefinesDefines currentcurrentbusiness activitiesbusiness activities

HighlightsHighlights boundariesboundaries of current businessof current business

ConveysConveys

WhoWho we are,we are,

WhatWhatwe do, andwe do, and

WhereWhere we are nowwe are now

CompanyCompany specificspecific, not generic, not generic

so as to give a company its own identityso as to give a company its own identityA companys mission isA companys mission is notnot to make ato make aprofit ! The real mission is alwaysprofit ! The real mission is alwaysWhatWhat

will we do to make a profit?will we do to make a profit?


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Defining Organizations BusinessDefining Organizations Business

A companys business is defined by what needs it is tryingA companys business is defined by what needs it is trying

to satisfy, by which customer groups it is targeting, and byto satisfy, by which customer groups it is targeting, and bythe technologies and competencies it uses and thethe technologies and competencies it uses and theactivities it performs.activities it performs.

A goodA good business definitionbusiness definition incorporates threeincorporates three

factorsfactors Customer needsCustomer needs ---- WhatWhatis being satisfiedis being satisfied

Customer groupsCustomer groups ---- WhoWho is being satisfiedis being satisfied

Technologies and competencies employedTechnologies and competencies employed

Technology, competencies, andTechnology, competencies, and activities are importantactivities are importantto defining a companys business because theyto defining a companys business because theyindicate the boundaries on its operations.indicate the boundaries on its operations.

HowHowvalue is delivered to customers to satisfy theirvalue is delivered to customers to satisfy theirneedsneeds


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Diversified companies have broaderDiversified companies have broader

missions and business definitions thanmissions and business definitions than

singlesingle--business enterprises.business enterprises.


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MISSIONMISSION

Mission is the organizations basic functionMission is the organizations basic function

in society. (Mintzberg)in society. (Mintzberg)

Mission outlines why an organizationMission outlines why an organization

exists.exists.


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ELEMENTS OF MISSIONELEMENTS OF MISSION

1.1. PURPOSEPURPOSE To make profit for shareholdersTo make profit for shareholders

To provide an apparatus of financial accountabilityTo provide an apparatus of financial accountability

2.2. STRATEGIC STANCESTRATEGIC STANCE The Products it offers and therefore its competitive positionThe Products it offers and therefore its competitive position

The Competences by which it hopes to prosper and its way ofThe Competences by which it hopes to prosper and its way ofcompetingcompeting

3.3. STANDARDS OF BEHAVIORSTANDARDS OF BEHAVIOR Conversion of mission into every day performanceConversion of mission into every day performance

4.4. VALUESVALUES Basic beliefs of the organizational membersBasic beliefs of the organizational members


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MISSION STATEMENTMISSION STATEMENT

Formal statement of an organizations missionFormal statement of an organizations mission

It captures the essence of why organization exists.It captures the essence of why organization exists.

It expresses the core values of organization.It expresses the core values of organization.

One of the roles of a mission statement is to giveOne of the roles of a mission statement is to give

the organization its own special identity, businessthe organization its own special identity, businessemphasis, and path for developmentemphasis, and path for developmentone thatone thattypically sets it apart from other similarly situatedtypically sets it apart from other similarly situatedcompanies.companies.


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MISSION STATEMENT MUST ANSWERMISSION STATEMENT MUST ANSWER

FOLLOWING QUESTIONSFOLLOWING QUESTIONS::

1.1. What is our reason for being?What is our reason for being?

2.2.What is our basic purpose?What is our basic purpose?

3.3. What Business are we in?What Business are we in?

4.4. What is unique or distinctive about ourWhat is unique or distinctive about ourorganization?organization?

5.5. What do we stand for?What do we stand for?


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The mission

statement is the

justification foran organization's

existence.


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WELL CRAFTED MISSION STATEMENTS ANSWERWELL CRAFTED MISSION STATEMENTS ANSWER

THREE FUNDAMENTAL QUESTIONSTHREE FUNDAMENTAL QUESTIONS::

1.1. Who we are?Who we are?

2.2. What we want to doWhat we want to door accomplish?or accomplish?

3.3. Why we do whatWhy we do what

we do?we do?Effective mission statements areEffective mission statements are

easily recalled and provide directioneasily recalled and provide direction

and motivation for the organization.and motivation for the organization.


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EXAMPLESEXAMPLES

GOOD AND BAD MISSION STATEMENTSGOOD AND BAD MISSION STATEMENTS

To Make People Happy

To Explore the

Universe and Search

for Life and to

Inspire the Next

Generation of

Explorers

NASA

Walt Disney

Does a good job of expressing the core

values of the organization. Also conveysunique qualities about the organization.

Too vague and and unclear. Need more

descriptive information about what makes

the organization special.


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FUNCTIONS OFFUNCTIONS OF

MISSION STATEMENTMISSION STATEMENT

It provides focus for strategic decisions.It provides focus for strategic decisions.

It creates values to guide discretionary decisionIt creates values to guide discretionary decision--making.making.

It strengthens organizational culture.It strengthens organizational culture.

It communicates the nature of organization to insiders andIt communicates the nature of organization to insiders andoutsiders.outsiders.

Good mission statements are highly personalizedGood mission statements are highly personalizedunique tounique tothe organization for which they are developed.the organization for which they are developed.


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PROBLEMS WITHPROBLEMS WITH

MISSION STATEMENTSMISSION STATEMENTS

Public Relations ExercisesPublic Relations Exercises

Ignored in PracticeIgnored in Practice

Full of GeneralizationsFull of Generalizations

Post HocPost Hoc

Mission does not drive the organization but are usedMission does not drive the organization but are used

to rationalize organizational existence.to rationalize organizational existence.


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Strategic VisionStrategic Vision

Charts an organizations future strategicCharts an organizations future strategiccoursecourse

Defines the business makeup for 5 yearsDefines the business makeup for 5 years(or more)(or more)

Specifies future technologySpecifies future technology--productproduct--customer focuscustomer focus

Indicates capabilities to be developedIndicates capabilities to be developed

Requires managers to exercise foresightRequires managers to exercise foresight


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The entrepreneurial challenge in developing a strategic visionThe entrepreneurial challenge in developing a strategic visionis to think creatively about how to prepare a company for theis to think creatively about how to prepare a company for thefuture.future.

Forming a strategic vision is an exercise in astuteForming a strategic vision is an exercise in astuteentrepreneurship, not a time for pipedreams or fantasies aboutentrepreneurship, not a time for pipedreams or fantasies aboutthe companys future.the companys future.

Many successful organizations need to change direction not inMany successful organizations need to change direction not inorder to survive but in order to maintain their success.order to survive but in order to maintain their success.

A wellA well--articulated strategic vision creates enthusiasm for thearticulated strategic vision creates enthusiasm for thecourse management has charted and engages members ofcourse management has charted and engages members ofthe organization.the organization.

The bestThe best--worded vision statements clearly and crisplyworded vision statements clearly and crisply

illuminate the direction in which an organization is headed.illuminate the direction in which an organization is headed.


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VISIONVISION

Vision is aVision is a DreamDream, with a Deadline., with a Deadline.

Vision is aVision is a Picture of FuturePicture of Future..

Vision providesVision provides Boundaries forBoundaries forOrganizations DirectionOrganizations Direction..

Strategy draws on the Vision.Strategy draws on the Vision.


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THREE ASPECTS OF VISIONTHREE ASPECTS OF VISION

1.1. What the organization is now?What the organization is now?

2.2. What it could be in an ideal world?What it could be in an ideal world?

3.3. What the ideal world would be like?What the ideal world would be like?


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FROM AN ORGANIZATIONAL PERSPECTIVE,FROM AN ORGANIZATIONAL PERSPECTIVE,

VISION HAS TO HAVE FIVE COMPONENTSVISION HAS TO HAVE FIVE COMPONENTS ::

1.1. A Sense of WorthinessA Sense of Worthiness

2.2. An Ability to InspireAn Ability to Inspire

3.3. An Invitation to ShareAn Invitation to Share

4.

4.

Clarity and UnderstandabilityClarity and Understandability

5.5. AchievabilityAchievability


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TIPS FOR WRITING THE VISIONTIPS FOR WRITING THE VISION

1.1. Visualize.Visualize. Close your eyes and Practice visualization.Close your eyes and Practice visualization.

2.2. Be Specific.Be Specific. Write your vision statement on paper.Write your vision statement on paper.Next write down all of your thoughts related to yourNext write down all of your thoughts related to yourvision. Make sure the most crucial thoughts arevision. Make sure the most crucial thoughts arecentral to your mission.central to your mission.

3.3. Be Descriptive.Be Descriptive. Present your thoughts in a logicalPresent your thoughts in a logical

fashion so that the reader can follow your vision.fashion so that the reader can follow your vision.

4.4. Be concise.Be concise. Stick to material that is relevant andStick to material that is relevant andnecessary for you to communicate your vision. Toonecessary for you to communicate your vision. Toolong a vision will not be read or understood.long a vision will not be read or understood.


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IN SUMMARYIN SUMMARY

You have to have aYou have to have a Plan for SuccessPlan for Success!!

ItIt starts with a Visionstarts with a Vision..

You get the vision by reaching eachYou get the vision by reaching each

Objective/ Goal.Objective/ Goal.


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22-- Setting ObjectivesSetting Objectives


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SETTING OBJECTIVESSETTING OBJECTIVES

Second directionSecond direction--setting task is to establishsetting task is to establish objectives,objectives,strategicstrategicandand financialfinancialfor the organization to achieve.for the organization to achieve.

Objectives convert the mission statement andObjectives convert the mission statement andstrategic vision into specific performance targets.strategic vision into specific performance targets.

Objectives need to spell out precisely how much byObjectives need to spell out precisely how much by

when, and they need to require a significant amount ofwhen, and they need to require a significant amount oforganizational stretch.organizational stretch.

Objectives are needed at all organizational levels.Objectives are needed at all organizational levels.


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Concept of Strategic IntentConcept of Strategic Intent

A company exhibitsA company exhibits strategic intentstrategic intent

when itwhen it relentlesslyrelentlesslypursuespursues strategicstrategic

objectiveobjective and concentrates itsand concentrates itscompetitive actions and energies oncompetitive actions and energies on

achieving that objective!achieving that objective!


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33-- Crafting StrategyCrafting Strategy


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A strategy is a commitment to undertakeA strategy is a commitment to undertake

one set of actions rather than another.one set of actions rather than another.

Sharon M. Oster, Professor, Yale UniversitySharon M. Oster, Professor, Yale University


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CRAFTING A STRATEGYCRAFTING A STRATEGY

Third directionThird direction--setting step entailssetting step entails crafting a strategycrafting a strategytotoachieve the objectives set in each area of the organization.achieve the objectives set in each area of the organization.

A Corporate Strategy is needed to achieve corporateA Corporate Strategy is needed to achieve corporate--levellevelobjectives;objectives;

Business Strategies are needed to achieve businessBusiness Strategies are needed to achieve business--unitunit

performance objectives;performance objectives;Functional Strategies are needed to achieve the performanceFunctional Strategies are needed to achieve the performancetargets set for each functional department; andtargets set for each functional department; and

OperatingOperating--level Strategies are needed to achieve thelevel Strategies are needed to achieve theobjectives set in each operating and geographic unit.objectives set in each operating and geographic unit.

In effect, an organization's strategic plan is a collection ofIn effect, an organization's strategic plan is a collection ofunified and interlocking strategies. Typically, the strategyunified and interlocking strategies. Typically, the strategy--making task is more topmaking task is more top--down than bottomdown than bottom--up. Lowerup. Lower--levellevelstrategies should contribute to the achievement of higherstrategies should contribute to the achievement of higher--level, companywide objectives.level, companywide objectives.


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L l f St tL l f St t


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Corporate

Strategy

Business Strategies

Functional Strategies

Operating Strategies

Two-Way Influence

Two-Way Influence

Two-Way Influence

Corporate-Level

Managers

Business-LevelManagers

Operating

Managers

Functional

Managers

Levels of StrategyLevels of Strategy

in a Diversified Companyin a Diversified Company

L l f St tL l f St t


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Levels of StrategyLevels of Strategy

in a Singlein a Single--Business CompanyBusiness Company

Business

Strategy

Two-Way Influence

Two-Way Influence

Functional Strategies

Operating Strategies

Executive-Level

Managers

Operating

Managers

Functional

Managers

C t St tC t St t


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Corporate StrategyCorporate Strategyfor a Diversified Companyfor a Diversified Company

Corporate

Strategy

Approach to

capital allocation

Narrow or broad-based diversification

Scope of

geographic

operations

Moves to add new

new businesses

Moves to build positions

in new industries

Efforts to capture

cross-business

strategic fits

Moves to divest

weak business units

Is diversification

related, unrelated

or a mix?


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Tasks of Corporate StrategyTasks of Corporate Strategy

Moves to achieveMoves to achieve diversificationdiversification

Actions toActions to boost performanceboost performance ofof

individual businessesindividual businesses

Capturing valuable crossCapturing valuable cross--businessbusiness

strategic fitsstrategic fits that result inthat result in 1 + 1 = 31 + 1 = 3

effects!effects!

EstablishingEstablishing investmentinvestment

prioritiespriorities and steeringand steering

corporate resources into thecorporate resources into the

most attractive businessesmost attractive businesses

C t f St tC t f St t


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Components of StrategyComponents of Strategy

for a Singlefor a Single--Business CompanyBusiness Company

Efforts to build

competitive

advantage

Planned, proactive moves to outcompete rivals

Responses to

changing

conditions

Scope ofgeographic

coverage

Collaborativepartnerships and

strategic alliances

R&D strategy

Supply chainmanagementstrategy

Manufacturingstrategy

Humanresources strategy

Finance strategy

Business

Strategy

Marketingstrategy


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Functional StrategiesFunctional Strategies

Game planGame plan for a strategicallyfor a strategically--relevantrelevantfunction, activity, or business processfunction, activity, or business process

DetailsDetails howhowkey activities will bekey activities will bemanagedmanaged

ProvideProvide supportsupportfor business strategyfor business strategy

SpecifySpecify howhowfunctional objectives are tofunctional objectives are to

be achievedbe achieved


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Operating StrategiesOperating Strategies

Concern narrower strategies forConcern narrower strategies for

managing grassroots activities andmanaging grassroots activities and

strategicallystrategically--relevantrelevant operating unitsoperating units

AddAdd detaildetailto business and functionalto business and functional

strategiesstrategies

N t ki fN t ki f


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Networking ofNetworking of

Missions, Objectives & StrategiesMissions, Objectives & Strategies

Level 1Corporate-LevelManagers

Level 2

Business-LevelManagers

Level 3Functional

Managers

Level 4Plant Managers,

Lower-Level

Supervisors

Corporate

Level

Objectives

Corporate-wide

Strategic

Vision

Corporate

Level

Strategy

Business

Level

Objectives

Business

Level Strategic

Vision

Business

Level

Strategies

Functional

Objectives

Functional

Missions

Functional

Strategies

Operating

Objectives

Operating

Missions

Operating

Strategies

Two-Way Influence Two-Way Influence Two-Way Influence



Factors Shaping the ChoiceFactors Shaping the Choice


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Factors Shaping the ChoiceFactors Shaping the Choice

of Company Strategyof Company Strategy

Companys Strategic SituationCraft

the

strategy

External Factors

Internal Factors

Social,political,

regulatory

and

community

factors

Competitive

conditions

and industry

attractiveness

Company

opportunities

and threats to

companys

well-being

Resource

strengths,

capabilities,

and

weaknesses

Influences of

key

executives

Shared values

and company

culture

Identify

and

evaluate

alternatives

Determinerelevance

of internal

and

external

factors

S i l P liti l R l tS i l P liti l R l t


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Social, Political, Regulatory,Social, Political, Regulatory,

and Community Factorsand Community Factors

Pressures from special interest groupsPressures from special interest groups

Glare of investigative reportingGlare of investigative reporting

Health and nutrition concernsHealth and nutrition concerns

Concerns about alcohol and drug abuseConcerns about alcohol and drug abuse

Sexual harassmentSexual harassment


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Corporate downsizingCorporate downsizing

Impact of plant closings on communitiesImpact of plant closings on communities

Rising/falling interest ratesRising/falling interest rates

Economic conditions (good or bad)Economic conditions (good or bad)

Trade restrictions, tariffs, and importTrade restrictions, tariffs, and importquotasquotas


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Corporate Social ResponsibilityCorporate Social Responsibility

Conducting company activities withinConducting company activities within

bounds of what is consideredbounds of what is considered ethicalethicalandandin public interestin public interest

Responding positively to emerging societalResponding positively to emerging societal

priorities and expectationspriorities and expectations

Demonstrating willingness to take neededDemonstrating willingness to take neededaction ahead of regulatory confrontationaction ahead of regulatory confrontation

Balancing stockholder interests againstBalancing stockholder interests againstlarger interest of society as a wholelarger interest of society as a whole

Being aBeing a good citizengood citizen in communityin community

Competitive Conditions andCompetitive Conditions and


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Competitive Conditions andCompetitive Conditions and

Industry AttractivenessIndustry Attractiveness

A companys strategy has to beA companys strategy has to beresponsiveresponsive toto

Fresh moves of rival competitorsFresh moves of rival competitors

Changes in industrysChanges in industrys

priceprice--costcost--profit economicsprofit economics

Shifting buyer needs and expectationsShifting buyer needs and expectations

New technological developmentsNew technological developments

Pace of market growthPace of market growth

C St th C t iC St th C t i


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Company Strengths, Competencies,Company Strengths, Competencies,and Competitive Capabilitiesand Competitive Capabilities

A company must have or be able toA company must have or be able toacquire the resources, competencies,acquire the resources, competencies,

and competitive capabilities needed toand competitive capabilities needed to

execute the chosen strategyexecute the chosen strategy

Resource deficiencies, gaps in skills, andResource deficiencies, gaps in skills, and

weaknesses in competitive position makeweaknesses in competitive position make

pursuit of certain strategies riskypursuit of certain strategies riskyoror

altogether unwisealtogether unwise

A Fi Ethi l R ibilitiA Fi Ethi l R ibiliti


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A Firms Ethical ResponsibilitiesA Firms Ethical Responsibilities

to Its Stakeholdersto Its Stakeholders

Owners/shareholders Rightfully expect someform of return on their investment

Employees - Rightfully expect respect for theirworth and devoting their energies to firm

Customers - Rightfully expect a seller to providethem with a reliable, safe product or service

Suppliers - Rightfully expect to have an equitablerelationship with firms they supply

Community- Rightfully expect businesses to begood citizens in their community


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THANK YOUTHANK YOU

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2nd Lecture-Establishing Direction