CHAPTER TWO

STRATEGY FORMULATION
Chapter outline
 The importance of a clear mission
 The nature of business mission
 Components of a mission statement
 Strategic goals and objectives

INTRODUCTION

An organization’s mission is the purpose or reason for the organization’s existence. It tells what
the company is providing to society—either a service such as housecleaning or a product such as
automobiles. A well-conceived mission statement defines the fundamental, unique purpose that
sets a company apart from other firms of its type and identifies the scope or domain of the
company’s operations in terms of products (including services) offered and markets served.
 A mission statement focuses on current business activities --“who we are and
what we do”
 Current product and service offerings
 Customer needs being served
 Technological and business capabilities

2.1. Mission statement

Mission Statements reveal what an organization wants to be and whom it wants to serve and
how? Mission Statements are essential for effectively establishing objectives and formulating
strategies
An enduring statement of purpose
Distinguishes one firm from another in the same business
A declaration of a firm’s reason for existence

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2.2. Vision Statement

A vision statement is sometimes called a picture of your company in the future but it’s so much
more than that. Your vision statement is your inspiration, the framework for all your strategic
planning. It is critically essential that management and executive agree on the basic vision, which
the organization endeavors to accomplish over a period of time
A lucid and clear vision lays down a foundation on which a sound mission statement can be
built.
A vision statement may apply to an entire company or to a single division of that company.
Whether for all or part of an organization, the vision statement answers the question, “Where do
we want to go?” Vision statement also answers the question “What do we want to become?”
What you are doing when creating a vision statement is articulating your dreams and hopes for
your business. It reminds you of what you are trying to build.
While a vision statement doesn’t tell you how you’re going to get there, it does set the direction
for your business planning. That’s why it’s important when crafting a vision statement to let your
imagination go and dare to dream – and why it’s important that a vision statement captures your
passion.
Unlike the mission statement, a vision statement is for you and the other members of your
company, not for your customers or clients.

2.3 Importance (Benefits) of Vision and Mission Statements

It is recommended for organizations’ to carefully develop a clear written vision and mission
statement in order to reap the following benefits
1. Achieve clarity of purpose among all managers and employees.
2. Provide a basis for all other strategic planning activities, including the internal and
external assessment, establishing objectives, developing strategies, choosing among
alternative strategies, devising policies, establishing organizational structure, allocating
resources, and evaluating performance.
3. Provide direction.
4. Provide a focal point for all stakeholders of the firm.
5. Resolve divergent views among managers.
6. Promote a sense of shared expectations among all managers and employees.

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 7. Project a sense of worth and intent to all stakeholders.
8. Project an organized, motivated organization worthy (well intentioned) of support.
9. Achieve higher organizational performance.
10. Achieve synergy (interaction) among all managers and employees.
11. Effective vehicles for communicating with important internal and external stakeholders
2.4 The nature of business mission
A Declaration of Attitude
An effective mission statement should not be too lengthy; recommended length is less than 250
words. An effective mission statement should arouse positive feelings and emotions about an
organization; it should be inspiring in the sense that it motivates readers to action. A mission
statement should be enduring. All of these are desired characteristics of a statement. An
effective mission statement generates the impression that a firm is successful, has direction, and
is worthy of time, support, and investment—from all socioeconomic groups of people.
It reflects judgments about future growth directions and strategies that are based on forward-
looking external and internal analyses. A business mission should provide useful criteria for
selecting among alternative strategies. A clear mission statement provides a basis for generating
and screening strategic options. The statement of mission should be dynamic in orientation,
allowing judgments about the most promising growth directions and those considered less
promising.
A Customer Orientation
Good mission statement reflects the anticipations of customers. Rather than developing a product
and then trying to find a market, the operating philosophy of organizations should be to identify
customers’ needs and then provide a product or service to fulfill those needs.
The following utility statements are relevant in developing a mission statement:
Do not offer me things.
Do not offer me clothes. Offer me attractive looks.
Do not offer me shoes. Offer me comfort for my feet and the pleasure of walking.
Do not offer me a house. Offer me security, comfort, and a place that is clean and happy.
Do not offer me books. Offer me hours of pleasure and the benefit of knowledge.
Do not offer me CDs. Offer me leisure and the sound of music.

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 Do not offer me tools. Offer me the benefits and the pleasure that come from making
beautiful things.
Do not offer me furniture. Offer me comfort and the quietness of a cozy place.
Do not offer me things. Offer me ideas, emotions, ambience, feelings, and benefits.
A major reason for developing a business mission statement is to attract customers who give
meaning to an organization.
Effective mission statements should be:
 It should be feasible: It should always aim high but it should not be an impossible
statement. It should be realistic and achievable.
 It should be precise: It should not be so narrow as to restrict the organization’s activities
nor should it be too broad to make itself meaningless.
 It should be clear: It should be clear enough to lead to action.
 It should be motivating: it should be motivating for members of the organization and of
society, and they should feel it worthwhile working for such an organization or being its
customers
 It should be distinctive: A mission statement which is indiscriminate is likely to have
little impact.
 It should indicate major components of strategy: It along with the organizational purpose,
should indicate the major components of the strategy to be adopted.
 It should indicate how objectives are accomplished: It should provide clues regarding the
manner in which the objectives are to be accomplished.

2.5 Components of a mission statement

Mission statements can and do vary in length, content, format, and specificity. Most practitioners
and academicians of strategic management consider an effective statement to exhibit nine
components. Because a mission statement is often the most visible and public part of the
strategic management process, it is important that it includes all of these essential components.
Components and corresponding questions that a mission statement should answer are given here.
Customer: Who are the firm’s customers?
Products or services: What are the firm’s major products or services?
Markets: Geographically, where does the firm compete?

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 Technology: Is the firm technologically current?
Concern for survival, growth, and profitability: Is the firm committed to growth and
financial soundness?
Philosophy: What are the basic beliefs, values, aspirations, and ethical priorities of the
firm?
Self-concept: What is the firm’s distinctive competence or major competitive
advantage?
Concern for public image: Is the firm responsive to social, community, and
environmental concerns?
Concern for employees: Are employees a valuable asset of the firm?

Examples of the Nine Essential Components of a Mission Statement

1. Customers
To earn our customers’ loyalty, we listen to them, anticipate their needs, and act to create value
in their eyes. (Lexmark International)
2. Products or Services
Standard Oil Company (Indiana) is in business to find and produce crude oil, natural gas, and
natural gas liquids; to manufacture high-quality products useful to society from these raw
materials; and to distribute and market those products and to provide dependable related services
to the consuming public at reasonable prices. (Standard Oil Company)
3. Markets
We are dedicated to the total success of Corning Glass Works as a worldwide competitor.
(Corning Glass Works)
4. Technology
We will continually strive to meet the preferences of adult smokers by developing technologies
that have the potential to reduce the health risks associated with smoking. (RJ Reynolds)
5. Concern for Survival, Growth, and Profitability
To serve the worldwide need for knowledge at a fair profit by adhering, evaluating, producing,
and distributing valuable information in a way that benefits our customers, employees, other
investors, and our society. (McGraw-Hill)
6. Philosophy

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Our world-class leadership is dedicated to a management philosophy that holds people above
profits. (Kellogg)
7. Self-Concept
Crown Zellerbach is committed to leapfrogging ongoing competition within 1,000 days by
unleashing the constructive and creative abilities and energies of each of its employees.
8. Concern for Public Image
To contribute to the economic strength of society and function as a good corporate citizen on a
local, state, and national basis in all countries in which we do business. (Pfizer)
9. Concern for Employees
To recruit, develop, motivate, reward, and retain personnel of exceptional ability, character, and
dedication by providing good working conditions, superior leadership, compensation on the basis
of performance, an attractive benefit program, opportunity for growth, and a high degree of
employment security. (The Wachovia Corporation)
2.6 Strategic goals and objectives
Goals: denotes what an organization hopes to accomplish in the feature. It represents a future
state or outcome of current efforts. Strategic goals translate the mission and vision in to concrete
terms and define benefits to be gained from introducing changes.
Objectives: are manifestations of goals, they are end result of that state how goals shall be
achieved. They are concrete and specific in contrast to goals. Objectives make goals operational
and mainly quantitative, measurable and comparable.

2.7 Issues in objective setting

 Specification of objectives
 Multiple nature of objective
 Related to time frame
 Reality
 Quality

IMPORTANCE OF SETTING GOALS & OBJECTIVES

•Planning is the most important management function.
–“Failing to plan is planning to fail”

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Setting goals and objectives is important because it is the first and most critical step in a
company’s planning process.
Objectives should be SMART
S Specific, M Measurable, AAchievable, R Realistic, T Time-oriented
Specific Objectives
The objective to be Specific,it should beConcrete, Detailed, Focused, Well-defined, Straight-
forward, Action-oriented.
Measurable Objectives
Measurements for objectives help you know when you have accomplished them. If you set an
objective that is measurable, when you complete it you have tangible evidence of completion.
Achievable Objectives

Achievable objectives are those that you can actually accomplish (something you can really do
within the time frame set) and not an aspiration. Achievable objectives need to challenge you but
not so much so as to be unattainable or to cause frustration in being unable to complete.
Realistic Objectives
Realistic objectives are those that you have the resources to accomplish including:Skills,
Funding, Equipment, and Staff.
Time-Oriented Objectives
Time-oriented objectives are those which have deadlines for completion. The time frames create
sufficient urgency and lead to action.
The deadlines, just as with overall objectives, must be achievable and realistic.
For a complex objective, break into small parts with a date for completion for each.
THE DIFFERENCE BETWEEN GOALS AND OBJECTIVES
 Goals are broad; objectives are narrow.
 Goals are general intentions; objectives are precise.
 Goals are intangible; objectives are tangible.
 Goals are abstract; objectives are concrete.
 Goals can't be validated as is; objectives can be validated.

TYPES OF OBJECTIVES (CONTROLS) REQUIRED

1. Financial Objectives

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Outcomes focused on improving a firm’s financial performance.
2. Strategic Objectives
Outcomes focused on improving a firm’s competitiveness and its long-term business position.
Every company needs both strategic and financial objectives!
Examples: Financial Objectives
•Increase sales growth 6 to 8 percent and accelerate core net earnings per share growth to 13 to
15 percent in each of the next five years

•Generate Internet-related revenueof for example $1.5 billion.

•Cut overhead costs by for example $30 million per year.

Examples: Strategic Objectives
•Capitalize on e-commerce (FedEx)
•We want a majority of our customers, when surveyed, to say they consider us the best financial
institution in the community (for banks)
•We want to operate 8,000 stores by 2018—up from 6000 in the year 2013 (wholesale firm)

SETTING OBJECTIVES
1. Decide on the essence of the objective (e.g., profitability, product quality, absenteeism). -
These should be specific to the organization...the “Key Performance Indicators” and tied to
Key Success Factors
2. Decide on the formula to measure the objective (e.g., annual profit as % of sales, # of product
defects, ratio of hours missed to total employee hours).
3. Quantify (outcome and timeframe) the objectives.
Objectives are needed at All Levels
Process is top-down!
1. First, establish organization-wide objectives
2. Next, set business and product line objectives
3. Then, establish functional and departmental objectives
4. Individual objectives come last
Objective-setting needs to be more of a top-down than a bottom-up process in order to guide
lower-level managers and organizational units toward outcomes that support the achievement of
overall business and company objectives.

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