Strategic management planning for domestic and global competition 14th ed pearce robinson chapter 2

Explain why the mission statement should include the company’s basic product or service, its primary markets, and its principal technology 3.. Explain which goal of a company is most im

Company

Mission

Chapter 2

Learning Objectives

1 Describe a company mission and explain its value

2 Explain why the mission statement should include the

company’s basic product or service, its primary markets, and its principal technology

3 Explain which goal of a company is most important: survival,

profitability, or growth

4 Discuss the importance of company philosophy, public image,

and company self-concept to stockholders

5 Give examples of the newest trends in mission statement

components: customer emphasis, quality, and company vision

6 Describe the role of a company’s board of directors

7 Explain agency theory and its value in helping a board of

directors improve corporate governance

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What is a Company Mission?

• Company Mission:

A broadly framed but enduring statement of

a firm’s intent It is the unique purpose that sets a company apart from others of its type and identifies the scope of its operations in product, market, and technology terms.

Questions Addressed in a Mission

Statement

• Why is this firm in business?

• What are our economic goals?

• What is our operating philosophy in terms of quality, company image, and self-concept?

• What are our core competencies and competitive

advantages?

• What customers do and can we serve?

• How do we view our responsibilities to stockholders, employees, communities, environment, social issues, and competitors?

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• As the business grows or is forced to alter its

product, market, or technology, redefining the

company mission may be necessary

Ex 2.2 (adapted) Mission Statement Components

Ex 2.2 Excerpts From Actual Mission Statements

Ex 2.2 Excerpts From Actual Mission

Statements (contd.)

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Three Indispensable Components:

• Basic Product or Service

• Primary Market

• Principal Technology

If a firm uses a “silver bullet” mission for outsiders to read, it will include these three components.

Primary Company Goals

• Survival – A firm that is unable to

survive will be incapable of

satisfying the aims of any of its

stakeholders

– This goal is often taken for granted

– If neglected, firm may focus on

short-term aims

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Primary Company Goals (contd.)

• Profitability – A firm’s profitability is the

mainstay goal of a business.

– Clearest indication of firm’s ability to satisfy

principal claims and desires of employees and

stockholders

Primary Company Goals (contd.)

• Growth – A firm’s growth is tied inextricably

to its survival and profitability Growth in this sense must be broadly defined

– Important to define growth – i.e., in terms of

market share, etc

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Public Image

• Both present and potential customers

attribute certain qualities to particular

businesses

• Firms seldom address the question of

their public image in an intermittent

fashion

• Firms should be concerned with their

public image even when there is no

public agitation

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Company Self-Concept

• A major determinant of a firm’s success is the

extent to which the firm can relate functionally to

its external environment

• The ability of firms to survive in a dynamic and

highly competitive environment would be severely

limited if they did not understand their impact on

others or of others on them

• Ordinarily, descriptions of the company

self-concept per se do not appear in mission

Newest Trends in Mission Components

• Sensitivity to customer wants

– “The customer is our top priority”

– Importance of consumer satisfaction

– Importance of customer service

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Newest Trends in Mission Components

(contd.)

• Quality

– “Quality is job one!”

– The work of W Edwards Deming and J.M Juran

– Malcolm Baldridge Awards

Deming’s 14 Points:

1 Create constancy of purpose.

2 Adopt the new philosophy.

3 Cease dependence on mass inspection to achieve quality

4 End the practice of awarding business on price tag alone

Instead, minimize total cost, often accomplished by

working with a single supplier.

5 Improve constantly the system of production and service.

6 Institute training on the job.

7 Institute leadership.

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Deming’s 14 Points (cont’d):

8 Drive out fear

9 Break down barriers between departments.

10.Eliminate slogans, exhortations, and numerical targets 11.Eliminate work standards (quotas) and management by objective.

12.Remove barriers that rob workers, engineers, and

managers of their right to pride of workmanship

13.Institute a vigorous program of education and

self-improvement

Newest Trends in Mission Components

(contd.)

• A vision statement presents a firm’s strategic

intent designed to focus the energies and

resources of the company on achieving a

desirable future.

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Boards of Directors

The board of directors is the group of

stockholder representatives and strategic managers responsible for overseeing the creation and accomplishment of the

company mission

Major Board Responsibilities:

• Establish and update mission

• Elect top officers & CEO

• Establish compensation for top officers

• Determine amount & timing of dividends

• Set broad company policy

• Set objectives and authorize managers to

implement long-term strategy

• Mandate company’s legal and ethics compliance

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Agency Theory

Agency theory is a set of ideas on

organizational control based on the belief

that the separation of the ownership

from management creates the potential

for the wishes of owners to be ignored

How Agency Problems Occur

• Moral hazard problem

• Executives are often free to pursue their own

interests because of the disproportionate access

they have to company information This is the

moral hazard problem

How Agency Problems Occur

Problems Resulting from Agency

• Executives pursue growth in company size rather than earnings

• Executives attempt to diversify their

corporate risk

• Executives avoid healthy risk

• Managers act to optimize their personal payoffs

Solutions to Agency Problem

Owners pay executives a premium for their service

to increase loyalty

Executives receive back-loaded compensation

Creating teams of executives across different units

of a corporation can help to focus performance measures on organizational rather than personal goals

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Aligning Executive Interests with Owner Interests

• Stock Option Plans

• Bonus plans

• Incentives for Term Performance