The managerial task of effectively conveying the essence of the strategic vision is made easier by:

13Chapter 2 Charting a Company’s Long-Term Direction: Vision, Mission, Objectives, and Strategy 13

Copyright © 2020 by Arthur A. Thompson. All rights reserved. Reproduction and distribution of the contents are expressly prohibited without the author’s written permission

Strategy: Core Concepts and Analytical Approaches

An e-book published by McGraw-Hill Education

Arthur A. Thompson, The University of Alabama 6th Edition, 2020-2021

13

chapter 2 Charting a Company’s Long­Term Direction: Vision, Mission, Objectives, and Strategy

If you don’t know where you are going, any road will take you there. —Cheshire Cat to Alice Lewis Carroll, Alice in Wonderland

Good business leaders create a vision, articulate the vision, passionately own the vision, and relentlessly drive it to completion. —Jack Welch, former CEO of General Electric

One secret to maintaining a thriving business is recognizing when it needs a fundamental change. —Mark W. Johnson, Clayton M. Christensen, and Henning Kagermann

A good goal is like a strenuous exercise—it makes you stretch. —Mary Kay Ash, Founder of Mary Kay Cosmetics

I f one is even halfway convinced that crafting and executing strategy are critically important managerial tasks, then understanding exactly what is involved in developing a strategy and executing it proficiently becomes essential. What goes into charting a company’s strategic course and long-term direction? Is any analysis required? Does a company need a strategic plan? What are the various components of the strategy- making, strategy-executing process? Aside from top executives, to what extent are other senior and mid-level managers involved in crafting important parts of the company’s overall strategy? What roles and functions do nonmanagerial employees play in the process of pursuing the vision and mission, meeting or beating performance targets, and implementing and executing the strategy proficiently?

This chapter presents an overview of the managerial ins and outs of crafting and executing company strategies. The focus is on management’s direction-setting responsibilities—developing a strategic vision that sets forth where the company is headed and what its mission will be, setting performance targets, and choosing a strategy capable of producing the desired outcomes. There is coverage of why strategy making is a task for a company’s entire management team and which kinds of strategic decisions are made at which levels of management. There

Chapter 2 • Charting a Company’s Long-Term Direction: Vision, Mission, Objectives, and Strategy 14

is a brief discussion of the principal managerial tasks associated with implementing and executing strategy and why a company’s whole managerial team is involved in the strategy execution process. The chapter concludes with a look at the roles and responsibilities of the company’s board of directors in the strategy-making, strategy- executing process and how good corporate governance protects shareholder interests and promotes good management.

What Does the Strategy-Making, Strategy-Executing Process Entail?

Crafting and executing a company’s strategy is an ongoing process that consists of five interrelated managerial tasks:

1 . Developing a strategic vision that charts the company’s long-term direction, a mission statement that describes the purpose of the company’s business, and a set of core values to guide the pursuit of the vision and mission.

2 . Setting objectives and using them as yardsticks for measuring the company’s performance and tracking its progress in achieving the intended strategic vision and mission.

3 . Crafting a strategy to achieve the objectives and move the company along the path to accomplishing the mission and vision.

4 . Implementing and executing the chosen strategy efficiently and effectively.

5 . Monitoring developments, evaluating performance, and initiating corrective adjustments in the company’s long-term direction, objectives, strategy, or execution in light of actual experience, changing conditions, fresh managerial ideas for improving the strategy, and newly emerging market opportunities.

Figure 2.1 displays this five-task process. Let’s examine each task in some detail, thereby setting the stage for the forthcoming chapters and giving you a bird’s-eye view of the book.

Figure 2.1 The Strategy-Making, Strategy-Executing Process

Task 1 Task 2 Task 3 Task 4 Task 5

Developing a strategic

vision, mission, and core values

Setting Objectives

Crafting a strategy

to achieve the objectives,

mission, and vision

Implementing and

executing the strategy

Monitoring developments,

evaluating performance, and initiating

corrective adjustments

Revise as needed in light of the company’s actual performance, changing conditions,

new opportunities, and new ideas

Chapter 2 • Charting a Company’s Long-Term Direction: Vision, Mission, Objectives, and Strategy 15

Task 1: Developing a Strategic Vision, Mission Statement, and Set of Core Values

Very early in the strategy-making process, a company’s senior executives must wrestle with the issue of what directional path the company should take. Can the company’s prospects be improved by changing its product offerings, the markets in which it participates, the customers it caters to, or the business activities in which it engages? Deciding to commit the company to one path versus another pushes top-level executives to draw some carefully reasoned conclusions about whether the company’s present strategic course offers attractive opportunities for growth and profitability or whether major or minor changes of one kind or another in the company’s strategy and long-term direction are needed. Some of the most important considerations in charting a company’s future direction are shown in Table 2.1.

Table 2.1 What to Consider in Deciding on a Company’s Future Direction

External Considerations Internal Considerations • Does sticking with the company’s present strategic

course present attractive opportunities for growth and profitability?

• How well is the company faring vis-à-vis key competitors? Is the company gaining ground or losing ground, and why?

• Are the winds of change—most especially those affecting the market and competitive arena—acting to enhance or weaken the company’s prospects?

• Is the company competing in too many markets or product categories where profits are skimpy or nonexistent?

• What, if any, new customer groups and/or geographic markets should the company get in position to serve?

• Does the company have attractively strong resources and competitive capabilities to grow revenues and profits in the years ahead?

• Which emerging market opportunities should the company pursue and which ones should not be pursued?

• What resource strengths and competitive capabilities offer good potential for creating competitive advantage?

• Are there good reasons why the company should begin to deemphasize or eventually abandon any of the markets or customer groups it is currently serving?

• Is the company at risk because of specific resource weaknesses or deficient competitive capabilities or threats of technological obsolescence?

Top management’s views and conclusions about the company’s long-term direction and what product-customer- market-business mix seems optimal for the road ahead constitute a strategic vision for the company. A strategic vision delineates management’s aspirations for the company, providing a panoramic view of “where we are going” and a convincing rationale for why this makes good business sense. A strategic vision thus points an organization in a particular direction, charts a strategic path for it to follow in preparing for the future, and molds organizational identity. A forward-looking and clearly articulated strategic vision communicates management’s aspirations to stakeholders (shareholders, employees, suppliers, customers, etc.) and helps steer the energies of company personnel in a common direction. The vision of Google cofounders Larry Page and Sergey Brin “to organize the world’s information and make it universally accessible and useful” provides a good example. In serving as the company’s guiding light, it has captured the imagination of stakeholders and the public at large, served as the basis for crafting the company’s strategic actions, and aided internal efforts to mobilize and direct the company’s resources.

Copyright © 2020 by Arthur A. Thompson. All rights reserved. Reproduction and distribution of the contents are expressly prohibited without the author’s written permission

CORE CONCEPT A strategic vision describes the route a company intends to take in developing and strengthening its business. It lays out the company’s strategic course in preparing for the future.

Chapter 2 • Charting a Company’s Long-Term Direction: Vision, Mission, Objectives, and Strategy 16

Clear, forward-looking visions are distinctive and specific to a particular organization; they avoid feel- good statements like “We will become a global leader and the first choice of customers in every market we choose to serve”—which could apply to hundreds of organizations.1 Likewise, a strategic vision proclaiming management’s quest “to be the market leader” or “to be the most innovative” or “to be recognized as the best company in the industry” offers scant guidance about a company’s long-term direction or the kind of company management is striving to build.

A surprising number of vision statements found on company websites and in annual reports are vague and unrevealing, conveying nothing meaningful about the company’s future direction. Some could apply to most any company in any industry. Many read like a public relations statement, full of high-sounding words and phrases that someone came up with because it is fashionable for companies to have a vision statement.2 An example is Hilton Hotel’s vision “to fill the earth with light and the warmth of hospitality,” which simply borders on the incredulous—could anyone believe these words have any connection to Hilton Hotel’s long-term direction and management’s aspirations for the future of the company’s hotel business?

For a strategic vision statement to serve a valuable managerial purpose, it cannot be just a bunch of nice words with no specifics or forward-looking content. Rather, it must convey something definitive about the company’s long-term direction (“where we need to be headed”) and address what changes in the company’s current product-market-customer-business mix are needed to better position the company in the light of technological developments, the actions of rivals, changing buyer needs and expectations, and assorted other factors that affect the company’s long-term business prospects. Vision statements that use revealing language to paint a picture of where the company is going and needed changes in its business make-up provide valuable understanding and decision-making guidance to managers at all organizational levels in doing their part to get the company moving along the indicated strategic path. Table 2.2 provides some dos and don’ts in composing a useful, effectively- worded vision statement.

Table 2.2 Wording a Vision Statement—The Do’s and Don’ts

The Do’s The Don’ts Be graphic—Paint a clear and straight-to-the-point picture of where the company is headed and the market position(s) the company intends to stake out.

Don’t dwell on the present—a vision is not about what a company once did or does now; it’s “about the future and where we are going.”

Be forward-looking and directional—Describe the strategic course management has charted and the kinds of product-market-customer-business changes that will help prepare the company for the future.

Don’t be vague or incomplete—Never skimp on specifics that delineate where the company is headed or how the company intends to prepare for the future.

Keep it focused—Include enough specifics and details to provide managers with useful guidance in making decisions and allocating resources.

Don’t use overly broad language—Avoid all-inclusive language that gives the company license to head in most any direction, pursue most any opportunity, or enter most any business.

Have some wiggle room—Language that allows some flexibility enables the strategic course to be fine- tuned as the company’s circumstances and external environment change—significantly modifying the vision statement frequently undercuts the whole concept of establishing a long-term direction for the company.

Don’t state the vision in bland or uninspiring terms— The best vision statements are worded in a manner that motivate and inspire company personnel and shareholders about the company’s future and the merits or value of what it is trying to accomplish.

A well­conceived vision statement clearly conveys a company’s long­term direction and says something definitive about what top executives want the company’s product­market­customer­business makeup to be in three to five (or more) years.

Chapter 2 • Charting a Company’s Long-Term Direction: Vision, Mission, Objectives, and Strategy 17

Be sure the journey is feasible—The path and direction should be within the realm of what the company can pursue and accomplish; over time, a company should be able to demonstrate measurable progress in achieving the vision.

Don’t be generic—A vision statement that could apply to companies in any of several industries (or to any of several rival companies in the company's industry) is incapable of giving a company its own unique identity or providing useful decision-making guidance.

Indicate why the directional path makes good business sense—The directional path should be in the long-term interests of stakeholders (especially shareholders, employees, and customers).

Don’t rely on superlatives—Visions that claim the company’s strategic course is one of being the “best” or “the most successful” or “a global leader” usually lack revealing specifics about the path the company intends to take to get there.

Make it memorable—A well-stated vision is short, easily communicated, and memorable. Ideally, it should be reducible to a few choice lines or a one-phrase “slogan.”

Don’t run on and on—A vision statement that is not concise and to the point will tend to lose its audience.

Sources: John P. Kotter, Leading Change (Boston: Harvard Business School Press, 1996), p. 72; Hugh Davidson, The Committed Enterprise (Oxford: Butterworth Heinemann, 2002, Chapter 2; and Michel Robert, Strategy Pure and Simple II (New York: McGraw- Hill, 1992), Chapters 2, 3, and 6.

Communicating the Strategic Vision How effectively top executives communicate the strategic vision to all company personnel is as important as the strategic soundness of the long-term direction they have chosen. A vision cannot provide direction for middle managers or inspire and energize employees unless everyone in the company is familiar with it and can observe top executives’ commitment to the vision. It is particularly important for executives to provide a compelling rationale for a dramatically new strategic vision and company direction. When company personnel don’t understand or accept the need for redirecting organizational efforts, they are prone to resist or be indifferent to the changes that management wants to make. Hence, explaining the basis for the new direction, addressing employee concerns head-on, calming fears, lifting spirits, and providing updates and progress reports as events unfold all become part of the task in mobilizing support for the vision and winning commitment to needed actions.

Winning the support of organization members for the vision nearly always requires putting “where we are going and why” in writing, distributing the statement organizationwide, and having executives personally explain the vision and its rationale to as many people as feasible. A strategic vision can usually be adequately stated in less than a page (often in one to two paragraphs), and managers should be able to explain it to company personnel and outsiders in five to ten minutes. Ideally, executives should present their vision for the company in a manner that reaches out and grabs people. An engaging and convincing strategic vision has enormous motivational value—for the same reason that a stone mason is more inspired by building a great cathedral for the ages than simply laying stones to create floors and walls. When managers articulate a vivid and compelling case for where the company is headed, organization members begin to say, “This is interesting and has a lot of merit. I want to be involved and do my part to help make it happen.” The more a vision evokes positive support and excitement, the greater its impact in terms of arousing a committed organizational effort and getting company personnel to move in a common direction.3 Thus, executive ability to paint a convincing and inspiring picture of a company’s journey and destination is an important element of effective strategic leadership.