Exploring Business Strategy
WEN.XU
lecture_5_strategic_purpose.pptExploring Business Strategy (247SAM)
Lecture 5 Strategic Purpose
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Update
Expected learning outcomes
- Assess the strategic purpose of an organisation in terms of statements of values, vision, mission and objectives.
- Examine the chain of corporate governance and different governance models.
- Be aware of different corporate responsibility stances taken by organisations and the ethics dilemma of individuals and managers, and how these are relate to strategic purpose.
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Free speak (5 mins)…
- What is the strategic purpose of an organisation?
- Do you agree that purpose drive strategy?
- Who influences the strategic purpose?
- And how to influence?
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Strategic position?
- ‘The strategic position is concerned with the impact on strategy of the external environment, the organisation’s strategic capability (resources and competences), the organisation’s goals and the organisation’s culture.’ (Johnson et al., 2014: 11)
- It is central for evaluating future strategy.
Defining and expressing the strategic purpose
Mission statements
- A mission statement aims to provide employees and stakeholders with clarity about what an organisation is fundamentally there to do.
- A mission statement should answer the questions:
‘What business are we in?’
‘How do we make a difference?’
‘Why do we do this?’
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An Ideal Mission Statement
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- Identifies the firm’s product or services.
- Specifies the buyer’s needs it seeks to satisfy.
- Identifies the customer groups or markets it is endeavouring 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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What is Apple’s mission statement?
Vision statements
- A vision statement is concerned with the future the organisation seeks to create; an aspiration that will enthuse, gain commitment and stretch performance.
- A vision statement should answer the question:
‘What do we want to achieve?’
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A good vision statement
- Focused
- Feasible
- Visible
- Inspiring
- In a few years (e.g. 5+)
e.g., To be the most reliable airline in the industry for on-time arrivals, and to have the lowest number of customer complaints. (mission statement)
e.g., We help families and business travellers to have a stress-free and enjoyable flight: we get people to their destination happy and on time. (vision statement)
Statement of corporate values
- A statement of corporate values should communicate the underlying and enduring core ‘principles’ that guide an organisation’s strategy and define the way that the organisation should operate.
e.g., Value Retail: vision and value?
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Linking Vision and Mission with Core Values
Core Values…
- Are the beliefs, traits, and behavioural 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.
- Match with the firm’s vision, mission, and strategy, contributing to the firm’s business success.
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Objectives
- Objectives are statements of specific outcomes that are to be achieved.
- Objectives are frequently expressed in:
- financial terms (e.g. desired profit levels)
- market terms (e.g. desired market share)
- social terms (e.g. corporate social responsibility targets)
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.
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Who influence on strategic purpose
Who are the stakeholders?
Stakeholders are those individuals or groups who depend on an organisation to fulfil their own goals and on whom, in turn, the organisation depends.
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There are both internal and external stakeholder and they could exert significant impact on the way that strategic decisions are made.
The manager need to factor in the likely impact of strategic decisions on the needs and expectations of stakeholders. This is where we get ‘political lobbying’
Stakeholders of a large organisation
Source: Adapted from R.E. Freeman, Strategic Management: A Stakeholder Approach, Pitman, 1984. Copyright 1984 by R. Edward Freeman.
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Stakeholder mapping
Stakeholder mapping identifies stakeholder expectations and power and helps in understanding political priorities when making strategic decisions.
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Stakeholder mapping:
the power/interest matrix
Stakeholder mapping: the power/interest matrix
Source: Adapted from A. Mendelow, Proceedings of the Second International Conference on Information Systems, Cambridge, MA, 1986
Power is the ability of individuals or groups to persuade, induce or coerce others into following certain courses of action.
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Corporate governance and governance chain
Corporate governance is concerned with the structures and systems of control by which managers are held accountable to those who have a legitimate stake in an organisation.
The governance chain shows the roles and relationship of different groups involved in the governance of an organisation.
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The governance chain
Figure: The chain of corporate governance: typical reporting structures
Source: Adapted from David Pitt-Watson, Hermes Fund Management
The chain shows the roles and relationships between different groups involved in the governance of the organization
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The principal-agent model
- The relationship in the governance chain can be analysed in terms of the “Principal-Agent Model”
- Principals pay agents to act on their behalf,
- e.g. beneficiaries/trustees pay investment managers to manage funds; Boards of Directors pay executives to run a company.
Example: CEO buys a company because of empire-building motivations
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Governance issues in the Principal-Agent model
- The key challenge is to align the interests of agents with those of the principals. However…
- Knowledge imbalance
- Monitoring limits
- Misaligned incentives
- Diversified responsibility
Misaligned centives, e.g. beneficiaries may require long term growth but executives may be seeking short term profit.
Diversified responsibility, e.g., responsibility to whom – should executives pursue solely shareholder aims or serve a wider constituency of stakeholders?
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Different governance models
- A shareholder model of governance
Dominant in public companies
Priority gives to the wealth generation
There are advantages and disadvantages
- The stakeholder model of governance
Wealth created, captured, distributed by a variety of stakeholders
Management responsive to multiple stakeholders
There are advantages and disadvantages
The role of boards of directors
Common themes:
- Operate ‘independently’ of the management – the role of non-executives is crucial in protecting shareholders’ interests.
- Be competent to scrutinise the activities of managers.
- Directors must have time to do their job properly.
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Corporate social responsibility
Corporate social responsibility (CSR) is the commitment by organisations to ‘behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as the local community and society at large’.1
1 World Business Council for Sustainable Development.
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The ethics dilemma of individuals and managers
Ethical issues have to be faced at the individual as well as corporate level, which can post difficult dilemmas for individuals and managers.
- e.g.. The responsibility of an individual who believes that the strategy of the organisation is unethical – resign, ignore it or take action, e.g. ‘Whistle-blowing’?
‘Whistle-blowing’ ?- divulging information to the authorities or media about an organisation if wrong doing is suspected.
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Summary
- An important managerial task is to decide how the organisation should express its strategic purpose through statements of mission, vision, values or objectives.
- The purpose of an organisation will be influenced by the expectations of its stakeholders.
- The influence of some key stakeholders is represented formally within the governance structure of an organisation. This can be represented in terms of a governance chain, showing the links between ultimate beneficiaries and the managers of an organisation.
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READINGS and SEMINAR for this week
- READING: CHAPTER 4 OF CORE TEXT
- SEMINAR: Case study of Club Med (which group will present this case study?)
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